Correlation Between Air New and Commonwealth Bank
Can any of the company-specific risk be diversified away by investing in both Air New 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 Air New and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Air New Zealand and Commonwealth Bank, you can compare the effects of market volatilities on Air New 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 Air New with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air New and Commonwealth Bank.
Diversification Opportunities for Air New and Commonwealth Bank
0.06 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Air and Commonwealth is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Air New Zealand and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Air New 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 Air New Zealand 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 Air New i.e., Air New and Commonwealth Bank go up and down completely randomly.
Pair Corralation between Air New and Commonwealth Bank
Assuming the 90 days trading horizon Air New is expected to generate 1.54 times less return on investment than Commonwealth Bank. But when comparing it to its historical volatility, Air New Zealand is 1.1 times less risky than Commonwealth Bank. It trades about 0.25 of its potential returns per unit of risk. Commonwealth Bank is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest 14,435 in Commonwealth Bank on September 3, 2024 and sell it today you would earn a total of 1,423 from holding Commonwealth Bank or generate 9.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Air New Zealand vs. Commonwealth Bank
Performance |
| Timeline |
| Air New Zealand |
| Commonwealth Bank |
Air New and Commonwealth Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Air New and Commonwealth Bank
The main advantage of trading using opposite Air New and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air New 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.| Air New vs. Jupiter Energy | Air New vs. WA1 Resources | Air New vs. Predictive Discovery | Air New vs. Cooper Metals |
| Commonwealth Bank vs. Alternative Investment Trust | Commonwealth Bank vs. Ora Banda Mining | Commonwealth Bank vs. Argo Investments | Commonwealth Bank vs. Talisman Mining |
Check out your portfolio center.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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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