Correlation Between Commonwealth Bank and TARGET

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and TARGET 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 TARGET 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 TARGET P 7, you can compare the effects of market volatilities on Commonwealth Bank and TARGET 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 TARGET. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and TARGET.

Diversification Opportunities for Commonwealth Bank and TARGET

0.63

Correlation Coefficient

Commonwealth Bank  TARGET

Poor diversification

The 3 months correlation between Commonwealth and TARGET is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and TARGET P 7 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TARGET P 7 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 TARGET. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TARGET P 7 has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and TARGET go up and down completely randomly.

Pair Corralation between Commonwealth Bank and TARGET

Assuming the 90 days horizon Commonwealth Bank is expected to generate 3.8 times less return on investment than TARGET. But when comparing it to its historical volatility, Commonwealth Bank of is 1.62 times less risky than TARGET. It trades about 0.07 of its potential returns per unit of risk. TARGET P 7 is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  11,216  in TARGET P 7 on October 26, 2024 and sell it today you would earn a total of  1,128  from holding TARGET P 7 or generate 10.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	42.37%
Values	Daily Returns

Commonwealth Bank of  vs.  TARGET P 7

Commonwealth Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 5 (%) 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 February 2025.

TARGET P 7

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TARGET P 7 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TARGET sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and TARGET

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

The idea behind Commonwealth Bank of and TARGET P 7 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.