Correlation Between Arthur J and Commonwealth Bank

Can any of the company-specific risk be diversified away by investing in both Arthur J and Commonwealth Bank 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 Arthur J and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Arthur J Gallagher and Commonwealth Bank of, you can compare the effects of market volatilities on Arthur J and Commonwealth Bank 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 Arthur J with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arthur J and Commonwealth Bank.

Diversification Opportunities for Arthur J and Commonwealth Bank

0.8

Correlation Coefficient

Arthur J  Commonwealth Bank

Very poor diversification

The 3 months correlation between Arthur and Commonwealth is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Arthur J Gallagher and Commonwealth Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Arthur J 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 Arthur J Gallagher are associated (or correlated) with Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of Arthur J i.e., Arthur J and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Arthur J and Commonwealth Bank

Assuming the 90 days horizon Arthur J Gallagher is expected to under-perform the Commonwealth Bank. In addition to that, Arthur J is 1.02 times more volatile than Commonwealth Bank of. It trades about -0.17 of its total potential returns per unit of risk. Commonwealth Bank of is currently generating about -0.14 per unit of volatility. If you would invest  9,625  in Commonwealth Bank of on October 9, 2024 and sell it today you would lose (303.00) from holding Commonwealth Bank of or give up 3.15% of portfolio value over 90 days.

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

Arthur J Gallagher  vs.  Commonwealth Bank of

Arthur J Gallagher

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Arthur J Gallagher are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Arthur J is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Commonwealth Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 12 (%) 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.

Pair Trading with Arthur J and Commonwealth Bank

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

The idea behind Arthur J Gallagher and Commonwealth Bank of 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.