Correlation Between Commonwealth Bank and Nissan Chemical

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

Diversification Opportunities for Commonwealth Bank and Nissan Chemical

0.22

Correlation Coefficient

Commonwealth Bank  Nissan Chemical

Modest diversification

The 3 months correlation between Commonwealth and Nissan is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Nissan Chemical Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nissan Chemical Corp 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 Nissan Chemical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nissan Chemical Corp has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Nissan Chemical go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Nissan Chemical

Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.94 times more return on investment than Nissan Chemical. However, Commonwealth Bank of is 1.06 times less risky than Nissan Chemical. It trades about 0.14 of its potential returns per unit of risk. Nissan Chemical Corp is currently generating about -0.06 per unit of risk. If you would invest  8,334  in Commonwealth Bank of on October 6, 2024 and sell it today you would earn a total of  845.00  from holding Commonwealth Bank of or generate 10.14% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Nissan Chemical Corp

Commonwealth Bank

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nissan Chemical Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nissan Chemical Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nissan Chemical is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Commonwealth Bank and Nissan Chemical

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

The idea behind Commonwealth Bank of and Nissan Chemical Corp 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.