Correlation Between Sonic Healthcare and Commonwealth Bank

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

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

Diversification Opportunities for Sonic Healthcare and Commonwealth Bank

0.52

Correlation Coefficient

Sonic Healthcare  Commonwealth Bank

Very weak diversification

The 3 months correlation between Sonic and Commonwealth is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Sonic Healthcare and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Sonic Healthcare 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 Sonic Healthcare 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 Sonic Healthcare i.e., Sonic Healthcare and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Sonic Healthcare and Commonwealth Bank

Assuming the 90 days trading horizon Sonic Healthcare is expected to generate 238.5 times less return on investment than Commonwealth Bank. In addition to that, Sonic Healthcare is 1.31 times more volatile than Commonwealth Bank. It trades about 0.0 of its total potential returns per unit of risk. Commonwealth Bank is currently generating about 0.09 per unit of volatility. If you would invest  9,821  in Commonwealth Bank on October 4, 2024 and sell it today you would earn a total of  5,536  from holding Commonwealth Bank or generate 56.37% return on investment over 90 days.

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

Sonic Healthcare  vs.  Commonwealth Bank

Sonic Healthcare

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sonic Healthcare are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Sonic Healthcare is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Commonwealth Bank

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sonic Healthcare and Commonwealth Bank

The main advantage of trading using opposite Sonic Healthcare and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sonic Healthcare 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 Sonic Healthcare 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.