Correlation Between Commonwealth Bank and Firstwave Cloud

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Firstwave Cloud at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Commonwealth Bank and Firstwave Cloud into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Commonwealth Bank and Firstwave Cloud Technology, you can compare the effects of market volatilities on Commonwealth Bank and Firstwave Cloud and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Commonwealth Bank with a short position of Firstwave Cloud. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Firstwave Cloud.

Diversification Opportunities for Commonwealth Bank and Firstwave Cloud

-0.68

Correlation Coefficient

Commonwealth Bank  Firstwave Cloud

Excellent diversification

The 3 months correlation between Commonwealth and Firstwave is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Firstwave Cloud Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Firstwave Cloud Tech and Commonwealth Bank is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Commonwealth Bank are associated (or correlated) with Firstwave Cloud. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Firstwave Cloud Tech has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Firstwave Cloud go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Firstwave Cloud

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 24.17 times less return on investment than Firstwave Cloud. But when comparing it to its historical volatility, Commonwealth Bank is 2.37 times less risky than Firstwave Cloud. It trades about 0.02 of its potential returns per unit of risk. Firstwave Cloud Technology is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2.30  in Firstwave Cloud Technology on October 23, 2024 and sell it today you would earn a total of  0.20  from holding Firstwave Cloud Technology or generate 8.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Commonwealth Bank  vs.  Firstwave Cloud Technology

Commonwealth Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Firstwave Cloud Tech

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firstwave Cloud Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Firstwave Cloud is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Commonwealth Bank and Firstwave Cloud

The main advantage of trading using opposite Commonwealth Bank and Firstwave Cloud positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Firstwave Cloud can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Firstwave Cloud will offset losses from the drop in Firstwave Cloud's long position.

The idea behind Commonwealth Bank and Firstwave Cloud Technology pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.