Correlation Between Commonwealth Bank and HNI Corp

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

Diversification Opportunities for Commonwealth Bank and HNI Corp

0.72

Correlation Coefficient

Commonwealth Bank  HNI Corp

Poor diversification

The 3 months correlation between Commonwealth and HNI is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and HNI Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HNI Corp 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 HNI Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HNI Corp has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and HNI Corp go up and down completely randomly.

Pair Corralation between Commonwealth Bank and HNI Corp

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 1.38 times more return on investment than HNI Corp. However, Commonwealth Bank is 1.38 times more volatile than HNI Corp. It trades about -0.27 of its potential returns per unit of risk. HNI Corp is currently generating about -0.43 per unit of risk. If you would invest  10,393  in Commonwealth Bank of on September 24, 2024 and sell it today you would lose (946.00) from holding Commonwealth Bank of or give up 9.1% 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.  HNI Corp

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. 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.

HNI Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HNI Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, HNI Corp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Commonwealth Bank and HNI Corp

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

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