Correlation Between Commonwealth Bank and Ameriprise Financial

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

Diversification Opportunities for Commonwealth Bank and Ameriprise Financial

0.68

Correlation Coefficient

Commonwealth Bank  Ameriprise Financial

Poor diversification

The 3 months correlation between Commonwealth and Ameriprise is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Ameriprise Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ameriprise Financial 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 Ameriprise Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ameriprise Financial has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Ameriprise Financial go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Ameriprise Financial

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.84 times more return on investment than Ameriprise Financial. However, Commonwealth Bank of is 1.18 times less risky than Ameriprise Financial. It trades about -0.04 of its potential returns per unit of risk. Ameriprise Financial is currently generating about -0.07 per unit of risk. If you would invest  9,530  in Commonwealth Bank of on December 23, 2024 and sell it today you would lose (408.00) from holding Commonwealth Bank of or give up 4.28% of portfolio value over 90 days.

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

Commonwealth Bank of  vs.  Ameriprise Financial

Commonwealth Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commonwealth Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly 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.

Ameriprise Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ameriprise Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's primary indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Commonwealth Bank and Ameriprise Financial

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

The idea behind Commonwealth Bank of and Ameriprise Financial 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.