Correlation Between Commonwealth Bank and Nufarm Finance

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Nufarm Finance 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 Nufarm Finance 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 Nufarm Finance NZ, you can compare the effects of market volatilities on Commonwealth Bank and Nufarm Finance 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 Nufarm Finance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Nufarm Finance.

Diversification Opportunities for Commonwealth Bank and Nufarm Finance

0.65

Correlation Coefficient

Commonwealth Bank  Nufarm Finance

Poor diversification

The 3 months correlation between Commonwealth and Nufarm is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Nufarm Finance NZ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nufarm Finance NZ 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 Nufarm Finance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nufarm Finance NZ has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Nufarm Finance go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Nufarm Finance

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 3.68 times less return on investment than Nufarm Finance. But when comparing it to its historical volatility, Commonwealth Bank of is 2.07 times less risky than Nufarm Finance. It trades about 0.06 of its potential returns per unit of risk. Nufarm Finance NZ is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  8,752  in Nufarm Finance NZ on September 2, 2024 and sell it today you would earn a total of  598.00  from holding Nufarm Finance NZ or generate 6.83% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Nufarm Finance NZ

Commonwealth Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 5 (%) 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.

Nufarm Finance NZ

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nufarm Finance NZ are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Nufarm Finance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Commonwealth Bank and Nufarm Finance

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

The idea behind Commonwealth Bank of and Nufarm Finance NZ 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.