Correlation Between Commonwealth Bank and Exchange Bankshares

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

Diversification Opportunities for Commonwealth Bank and Exchange Bankshares

0.53

Correlation Coefficient

Commonwealth Bank  Exchange Bankshares

Very weak diversification

The 3 months correlation between Commonwealth and Exchange is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Exchange Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bankshares 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 Exchange Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bankshares has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Exchange Bankshares go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Exchange Bankshares

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.75 times more return on investment than Exchange Bankshares. However, Commonwealth Bank of is 1.34 times less risky than Exchange Bankshares. It trades about 0.05 of its potential returns per unit of risk. Exchange Bankshares is currently generating about 0.02 per unit of risk. If you would invest  6,929  in Commonwealth Bank of on October 5, 2024 and sell it today you would earn a total of  2,637  from holding Commonwealth Bank of or generate 38.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	61.94%
Values	Daily Returns

Commonwealth Bank of  vs.  Exchange Bankshares

Commonwealth Bank

Risk-Adjusted Performance

4 of 100

Modest

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. 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.

Exchange Bankshares

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bankshares are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental indicators, Exchange Bankshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Exchange Bankshares

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

The idea behind Commonwealth Bank of and Exchange Bankshares 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.