Correlation Between Commonwealth Bank and State Gas

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and State Gas 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 State Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Commonwealth Bank and State Gas, you can compare the effects of market volatilities on Commonwealth Bank and State Gas 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 State Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and State Gas.

Diversification Opportunities for Commonwealth Bank and State Gas

-0.27

Correlation Coefficient

Commonwealth Bank  State Gas

Very good diversification

The 3 months correlation between Commonwealth and State is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and State Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Gas 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 State Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Gas has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and State Gas go up and down completely randomly.

Pair Corralation between Commonwealth Bank and State Gas

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 1.88 times less return on investment than State Gas. But when comparing it to its historical volatility, Commonwealth Bank is 5.39 times less risky than State Gas. It trades about 0.14 of its potential returns per unit of risk. State Gas is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4.50  in State Gas on September 12, 2024 and sell it today you would earn a total of  0.30  from holding State Gas or generate 6.67% return on investment over 90 days.

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

Commonwealth Bank  vs.  State Gas

Commonwealth Bank

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 10 (%) 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 January 2025.

State Gas

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in State Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, State Gas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and State Gas

The main advantage of trading using opposite Commonwealth Bank and State Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, State Gas 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 State Gas will offset losses from the drop in State Gas' long position.

The idea behind Commonwealth Bank and State Gas 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.

Check out your portfolio center.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.