Correlation Between Commonwealth Bank and Spirit Telecom

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

Diversification Opportunities for Commonwealth Bank and Spirit Telecom

-0.27

Correlation Coefficient

Commonwealth Bank  Spirit Telecom

Very good diversification

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

Pair Corralation between Commonwealth Bank and Spirit Telecom

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 2.64 times less return on investment than Spirit Telecom. But when comparing it to its historical volatility, Commonwealth Bank of is 13.88 times less risky than Spirit Telecom. It trades about 0.09 of its potential returns per unit of risk. Spirit Telecom is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  65.00  in Spirit Telecom on October 22, 2024 and sell it today you would lose (9.00) from holding Spirit Telecom or give up 13.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	81.2%
Values	Daily Returns

Commonwealth Bank of  vs.  Spirit Telecom

Commonwealth Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Commonwealth Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Commonwealth Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Spirit Telecom

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Spirit Telecom has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Spirit Telecom is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Commonwealth Bank and Spirit Telecom

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

The idea behind Commonwealth Bank of and Spirit Telecom 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .