Correlation Between Commonwealth Bank and Aristocrat Leisure
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Aristocrat Leisure 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 Aristocrat Leisure into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Bank of and Aristocrat Leisure, you can compare the effects of market volatilities on Commonwealth Bank and Aristocrat Leisure 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 Aristocrat Leisure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Aristocrat Leisure.
Diversification Opportunities for Commonwealth Bank and Aristocrat Leisure
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Commonwealth and Aristocrat is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Aristocrat Leisure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Leisure 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 of are associated (or correlated) with Aristocrat Leisure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Leisure has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Aristocrat Leisure go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Aristocrat Leisure
Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 7.49 times less return on investment than Aristocrat Leisure. But when comparing it to its historical volatility, Commonwealth Bank of is 4.29 times less risky than Aristocrat Leisure. It trades about 0.06 of its potential returns per unit of risk. Aristocrat Leisure is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 3,526 in Aristocrat Leisure on September 1, 2024 and sell it today you would earn a total of 3,249 from holding Aristocrat Leisure or generate 92.14% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. Aristocrat Leisure
Performance |
| Timeline |
| Commonwealth Bank |
| Aristocrat Leisure |
Commonwealth Bank and Aristocrat Leisure Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Aristocrat Leisure
The main advantage of trading using opposite Commonwealth Bank and Aristocrat Leisure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Aristocrat Leisure 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 Aristocrat Leisure will offset losses from the drop in Aristocrat Leisure's long position.| Commonwealth Bank vs. Westpac Banking | Commonwealth Bank vs. Commonwealth Bank | Commonwealth Bank vs. Commonwealth Bank of | Commonwealth Bank vs. Commonwealth Bank of |
| Aristocrat Leisure vs. iShares Global Healthcare | Aristocrat Leisure vs. Australian Dairy Farms | Aristocrat Leisure vs. Adriatic Metals Plc | Aristocrat Leisure vs. Australian Agricultural |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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