Correlation Between Commonwealth Bank and Solaris Energy

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

Diversification Opportunities for Commonwealth Bank and Solaris Energy

0.71

Correlation Coefficient

Commonwealth Bank  Solaris Energy

Poor diversification

The 3 months correlation between Commonwealth and Solaris is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Solaris Energy Infrastructure, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solaris Energy Infra 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 Solaris Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solaris Energy Infra has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Solaris Energy go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Solaris Energy

Assuming the 90 days horizon Commonwealth Bank is expected to generate 40.49 times less return on investment than Solaris Energy. But when comparing it to its historical volatility, Commonwealth Bank of is 3.23 times less risky than Solaris Energy. It trades about 0.02 of its potential returns per unit of risk. Solaris Energy Infrastructure, is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,195  in Solaris Energy Infrastructure, on October 3, 2024 and sell it today you would earn a total of  1,654  from holding Solaris Energy Infrastructure, or generate 138.41% 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.  Solaris Energy Infrastructure,

Commonwealth Bank

Risk-Adjusted Performance

4 of 100

Insignificant

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.

Solaris Energy Infra

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Solaris Energy Infrastructure, are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Solaris Energy demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Solaris Energy

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

The idea behind Commonwealth Bank of and Solaris Energy Infrastructure, 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.