Correlation Between Ramsay Health and Commonwealth Bank

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

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

Diversification Opportunities for Ramsay Health and Commonwealth Bank

-0.76

Correlation Coefficient

Ramsay Health  Commonwealth Bank

Pay attention - limited upside

The 3 months correlation between Ramsay and Commonwealth is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Ramsay Health Care and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Ramsay Health 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 Ramsay Health Care 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 Ramsay Health i.e., Ramsay Health and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Ramsay Health and Commonwealth Bank

Assuming the 90 days trading horizon Ramsay Health Care is expected to under-perform the Commonwealth Bank. In addition to that, Ramsay Health is 1.39 times more volatile than Commonwealth Bank. It trades about -0.06 of its total potential returns per unit of risk. Commonwealth Bank is currently generating about 0.1 per unit of volatility. If you would invest  9,508  in Commonwealth Bank on September 17, 2024 and sell it today you would earn a total of  6,313  from holding Commonwealth Bank or generate 66.4% return on investment over 90 days.

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

Ramsay Health Care  vs.  Commonwealth Bank

Ramsay Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ramsay Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's 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

10 of 100

OK

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

Pair Trading with Ramsay Health and Commonwealth Bank

The main advantage of trading using opposite Ramsay Health and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ramsay Health 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 Ramsay Health Care 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.