Correlation Between Commonwealth Bank and Whitehaven Coal

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

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

Diversification Opportunities for Commonwealth Bank and Whitehaven Coal

-0.49

Correlation Coefficient

Commonwealth Bank  Whitehaven Coal

Very good diversification

The 3 months correlation between Commonwealth and Whitehaven is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Whitehaven Coal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Whitehaven Coal 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 Whitehaven Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Whitehaven Coal has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Whitehaven Coal go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Whitehaven Coal

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.78 times more return on investment than Whitehaven Coal. However, Commonwealth Bank is 1.28 times less risky than Whitehaven Coal. It trades about -0.07 of its potential returns per unit of risk. Whitehaven Coal is currently generating about -0.11 per unit of risk. If you would invest  15,938  in Commonwealth Bank on October 9, 2024 and sell it today you would lose (336.00) from holding Commonwealth Bank or give up 2.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Commonwealth Bank  vs.  Whitehaven Coal

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.

Whitehaven Coal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Whitehaven Coal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Commonwealth Bank and Whitehaven Coal

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

The idea behind Commonwealth Bank and Whitehaven Coal 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 Stocks Directory module to find actively traded stocks across global markets.