Correlation Between Commonwealth Bank and True North

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

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

Diversification Opportunities for Commonwealth Bank and True North

-0.35

Correlation Coefficient

Commonwealth Bank  True North

Very good diversification

The 3 months correlation between Commonwealth and True is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and True North Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on True North Copper 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 True North. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of True North Copper has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and True North go up and down completely randomly.

Pair Corralation between Commonwealth Bank and True North

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.2 times more return on investment than True North. However, Commonwealth Bank is 4.9 times less risky than True North. It trades about 0.14 of its potential returns per unit of risk. True North Copper is currently generating about -0.06 per unit of risk. If you would invest  10,134  in Commonwealth Bank on September 28, 2024 and sell it today you would earn a total of  5,378  from holding Commonwealth Bank or generate 53.07% 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.  True North Copper

Commonwealth Bank

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

True North Copper

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days True North Copper has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Commonwealth Bank and True North

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

The idea behind Commonwealth Bank and True North Copper 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.