Correlation Between Commonwealth Bank and Stewart Information

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

Diversification Opportunities for Commonwealth Bank and Stewart Information

-0.02

Correlation Coefficient

Commonwealth Bank  Stewart Information

Good diversification

The 3 months correlation between Commonwealth and Stewart is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Stewart Information Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stewart Information 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 Stewart Information. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stewart Information has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Stewart Information go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Stewart Information

Assuming the 90 days horizon Commonwealth Bank of is expected to under-perform the Stewart Information. But the stock apears to be less risky and, when comparing its historical volatility, Commonwealth Bank of is 1.57 times less risky than Stewart Information. The stock trades about -0.1 of its potential returns per unit of risk. The Stewart Information Services is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  6,502  in Stewart Information Services on December 25, 2024 and sell it today you would lose (152.00) from holding Stewart Information Services or give up 2.34% of portfolio value over 90 days.

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

Commonwealth Bank of  vs.  Stewart Information Services

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Stewart Information

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stewart Information Services has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Stewart Information 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 Stewart Information

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

The idea behind Commonwealth Bank of and Stewart Information Services 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.