Correlation Between Commonwealth Bank and Commerzbank

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

Diversification Opportunities for Commonwealth Bank and Commerzbank

-0.57

Correlation Coefficient

Commonwealth Bank  Commerzbank

Excellent diversification

The 3 months correlation between Commonwealth and Commerzbank is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Commerzbank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerzbank AG 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 Commerzbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerzbank AG has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Commerzbank go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Commerzbank

Assuming the 90 days horizon Commonwealth Bank of is expected to under-perform the Commerzbank. But the stock apears to be less risky and, when comparing its historical volatility, Commonwealth Bank of is 1.59 times less risky than Commerzbank. The stock trades about -0.07 of its potential returns per unit of risk. The Commerzbank AG is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  1,552  in Commerzbank AG on December 27, 2024 and sell it today you would earn a total of  775.00  from holding Commerzbank AG or generate 49.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Commonwealth Bank of  vs.  Commerzbank AG

Commonwealth Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commonwealth Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Commonwealth Bank is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Commerzbank AG

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Commerzbank AG are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward-looking signals, Commerzbank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Commerzbank

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

The idea behind Commonwealth Bank of and Commerzbank AG 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.