Correlation Between Commonwealth Bank and Australian Dairy
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Australian Dairy 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 Commonwealth Bank and Australian Dairy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Bank and Australian Dairy Farms, you can compare the effects of market volatilities on Commonwealth Bank and Australian Dairy 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 Commonwealth Bank with a short position of Australian Dairy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Australian Dairy.
Diversification Opportunities for Commonwealth Bank and Australian Dairy
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and Australian is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Australian Dairy Farms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Australian Dairy Farms and Commonwealth Bank 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 Commonwealth Bank are associated (or correlated) with Australian Dairy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Australian Dairy Farms has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Australian Dairy go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Australian Dairy
Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 4.37 times less return on investment than Australian Dairy. But when comparing it to its historical volatility, Commonwealth Bank is 3.57 times less risky than Australian Dairy. It trades about 0.3 of its potential returns per unit of risk. Australian Dairy Farms is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest 2.00 in Australian Dairy Farms on August 30, 2024 and sell it today you would earn a total of 0.90 from holding Australian Dairy Farms or generate 45.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank vs. Australian Dairy Farms
Performance |
| Timeline |
| Commonwealth Bank |
| Australian Dairy Farms |
Commonwealth Bank and Australian Dairy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Australian Dairy
The main advantage of trading using opposite Commonwealth Bank and Australian Dairy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Australian Dairy 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 Australian Dairy will offset losses from the drop in Australian Dairy's long position.| Commonwealth Bank vs. Treasury Wine Estates | Commonwealth Bank vs. Iron Road | Commonwealth Bank vs. EMvision Medical Devices | Commonwealth Bank vs. Aussie Broadband |
| Australian Dairy vs. Aeris Environmental | Australian Dairy vs. Fisher Paykel Healthcare | Australian Dairy vs. Oneview Healthcare PLC | Australian Dairy vs. Advanced Braking Technology |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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