Correlation Between Commonwealth Bank and SIMS METAL

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

Diversification Opportunities for Commonwealth Bank and SIMS METAL

0.19

Correlation Coefficient

Commonwealth Bank  SIMS METAL

Average diversification

The 3 months correlation between Commonwealth and SIMS is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and SIMS METAL MGT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SIMS METAL MGT 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 SIMS METAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SIMS METAL MGT has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and SIMS METAL go up and down completely randomly.

Pair Corralation between Commonwealth Bank and SIMS METAL

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.78 times more return on investment than SIMS METAL. However, Commonwealth Bank of is 1.29 times less risky than SIMS METAL. It trades about -0.28 of its potential returns per unit of risk. SIMS METAL MGT is currently generating about -0.28 per unit of risk. If you would invest  9,944  in Commonwealth Bank of on September 24, 2024 and sell it today you would lose (770.00) from holding Commonwealth Bank of or give up 7.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Commonwealth Bank of  vs.  SIMS METAL MGT

Commonwealth Bank

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SIMS METAL MGT

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SIMS METAL MGT are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound primary indicators, SIMS METAL is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Commonwealth Bank and SIMS METAL

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

The idea behind Commonwealth Bank of and SIMS METAL MGT 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.

Check out your portfolio center.

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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.