Correlation Between Commonwealth Bank and LONDON STEXUNSPADRS1/2

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and LONDON STEXUNSPADRS1/2 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 LONDON STEXUNSPADRS1/2 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 LONDON STEXUNSPADRS12, you can compare the effects of market volatilities on Commonwealth Bank and LONDON STEXUNSPADRS1/2 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 LONDON STEXUNSPADRS1/2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and LONDON STEXUNSPADRS1/2.

Diversification Opportunities for Commonwealth Bank and LONDON STEXUNSPADRS1/2

0.75

Correlation Coefficient

Commonwealth Bank  LONDON STEXUNSPADRS1/2

Poor diversification

The 3 months correlation between Commonwealth and LONDON is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and LONDON STEXUNSPADRS12 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LONDON STEXUNSPADRS1/2 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 LONDON STEXUNSPADRS1/2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LONDON STEXUNSPADRS1/2 has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and LONDON STEXUNSPADRS1/2 go up and down completely randomly.

Pair Corralation between Commonwealth Bank and LONDON STEXUNSPADRS1/2

Assuming the 90 days horizon Commonwealth Bank of is expected to under-perform the LONDON STEXUNSPADRS1/2. But the stock apears to be less risky and, when comparing its historical volatility, Commonwealth Bank of is 1.59 times less risky than LONDON STEXUNSPADRS1/2. The stock trades about -0.04 of its potential returns per unit of risk. The LONDON STEXUNSPADRS12 is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  3,360  in LONDON STEXUNSPADRS12 on December 30, 2024 and sell it today you would lose (20.00) from holding LONDON STEXUNSPADRS12 or give up 0.6% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Commonwealth Bank of  vs.  LONDON STEXUNSPADRS12

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.

LONDON STEXUNSPADRS1/2

Risk-Adjusted Performance

Very Weak

Over the last 90 days LONDON STEXUNSPADRS12 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, LONDON STEXUNSPADRS1/2 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Commonwealth Bank and LONDON STEXUNSPADRS1/2

The main advantage of trading using opposite Commonwealth Bank and LONDON STEXUNSPADRS1/2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, LONDON STEXUNSPADRS1/2 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 LONDON STEXUNSPADRS1/2 will offset losses from the drop in LONDON STEXUNSPADRS1/2's long position.

The idea behind Commonwealth Bank of and LONDON STEXUNSPADRS12 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.