Correlation Between Commonwealth Bank and Svenska Handelsbanken

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

Diversification Opportunities for Commonwealth Bank and Svenska Handelsbanken

0.12

Correlation Coefficient

Commonwealth Bank  Svenska Handelsbanken

Average diversification

The 3 months correlation between Commonwealth and Svenska is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Svenska Handelsbanken PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Svenska Handelsbanken 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 Svenska Handelsbanken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Svenska Handelsbanken has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Svenska Handelsbanken go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Svenska Handelsbanken

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.9 times more return on investment than Svenska Handelsbanken. However, Commonwealth Bank of is 1.11 times less risky than Svenska Handelsbanken. It trades about 0.12 of its potential returns per unit of risk. Svenska Handelsbanken PK is currently generating about -0.01 per unit of risk. If you would invest  9,460  in Commonwealth Bank of on August 30, 2024 and sell it today you would earn a total of  933.00  from holding Commonwealth Bank of or generate 9.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Commonwealth Bank of  vs.  Svenska Handelsbanken PK

Commonwealth Bank

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Svenska Handelsbanken

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Svenska Handelsbanken PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Svenska Handelsbanken is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Commonwealth Bank and Svenska Handelsbanken

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

The idea behind Commonwealth Bank of and Svenska Handelsbanken PK 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 Global Correlations module to find global opportunities by holding instruments from different markets.