Correlation Between Insurance Australia and Commonwealth Bank

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

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

Diversification Opportunities for Insurance Australia and Commonwealth Bank

0.43

Correlation Coefficient

Insurance Australia  Commonwealth Bank

Very weak diversification

The 3 months correlation between Insurance and Commonwealth is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Insurance Australia Group and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Insurance Australia 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 Insurance Australia Group 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 Insurance Australia i.e., Insurance Australia and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Insurance Australia and Commonwealth Bank

Assuming the 90 days trading horizon Insurance Australia Group is expected to under-perform the Commonwealth Bank. In addition to that, Insurance Australia is 1.58 times more volatile than Commonwealth Bank. It trades about -0.07 of its total potential returns per unit of risk. Commonwealth Bank is currently generating about -0.03 per unit of volatility. If you would invest  15,405  in Commonwealth Bank on December 27, 2024 and sell it today you would lose (382.00) from holding Commonwealth Bank or give up 2.48% of portfolio value over 90 days.

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

Insurance Australia Group  vs.  Commonwealth Bank

Insurance Australia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insurance Australia Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Commonwealth Bank

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Insurance Australia and Commonwealth Bank

The main advantage of trading using opposite Insurance Australia and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insurance Australia 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 Insurance Australia Group and Commonwealth Bank 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.