Correlation Between Commonwealth Bank and Insurance Australia

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

Diversification Opportunities for Commonwealth Bank and Insurance Australia

0.91

Correlation Coefficient

Commonwealth Bank  Insurance Australia

Almost no diversification

The 3 months correlation between Commonwealth and Insurance is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Insurance Australia Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insurance Australia 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 Insurance Australia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insurance Australia has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Insurance Australia go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Insurance Australia

Assuming the 90 days horizon Commonwealth Bank of is expected to under-perform the Insurance Australia. But the stock apears to be less risky and, when comparing its historical volatility, Commonwealth Bank of is 1.12 times less risky than Insurance Australia. The stock trades about -0.23 of its potential returns per unit of risk. The Insurance Australia Group is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  515.00  in Insurance Australia Group on October 3, 2024 and sell it today you would lose (15.00) from holding Insurance Australia Group or give up 2.91% of portfolio value over 90 days.

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

Commonwealth Bank of  vs.  Insurance Australia Group

Commonwealth Bank

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 11 (%) 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 February 2025.

Insurance Australia

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Insurance Australia Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Insurance Australia reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Insurance Australia

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

The idea behind Commonwealth Bank of and Insurance Australia Group 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.