Correlation Between Commonwealth Bank and Hutchison Telecommunicatio

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

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

Diversification Opportunities for Commonwealth Bank and Hutchison Telecommunicatio

-0.17

Correlation Coefficient

Commonwealth Bank  Hutchison Telecommunicatio

Good diversification

The 3 months correlation between Commonwealth and Hutchison is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Hutchison Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hutchison Telecommunicatio 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 of are associated (or correlated) with Hutchison Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hutchison Telecommunicatio has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Hutchison Telecommunicatio go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Hutchison Telecommunicatio

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 7.97 times less return on investment than Hutchison Telecommunicatio. But when comparing it to its historical volatility, Commonwealth Bank of is 23.91 times less risky than Hutchison Telecommunicatio. It trades about 0.05 of its potential returns per unit of risk. Hutchison Telecommunications is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3.80  in Hutchison Telecommunications on September 26, 2024 and sell it today you would lose (1.00) from holding Hutchison Telecommunications or give up 26.32% of portfolio value over 90 days.

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

Commonwealth Bank of  vs.  Hutchison Telecommunications

Commonwealth Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Commonwealth Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hutchison Telecommunicatio

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hutchison Telecommunications are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Hutchison Telecommunicatio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Commonwealth Bank and Hutchison Telecommunicatio

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

The idea behind Commonwealth Bank of and Hutchison Telecommunications 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.