Correlation Between Commonwealth Bank and Insignia Financial
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Insignia Financial 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 Insignia Financial 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 Insignia Financial, you can compare the effects of market volatilities on Commonwealth Bank and Insignia Financial 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 Insignia Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Insignia Financial.
Diversification Opportunities for Commonwealth Bank and Insignia Financial
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Commonwealth and Insignia is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Insignia Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insignia Financial 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 Insignia Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insignia Financial has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Insignia Financial go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Insignia Financial
Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 9.09 times less return on investment than Insignia Financial. But when comparing it to its historical volatility, Commonwealth Bank of is 4.65 times less risky than Insignia Financial. It trades about 0.05 of its potential returns per unit of risk. Insignia Financial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 302.00 in Insignia Financial on August 25, 2024 and sell it today you would earn a total of 15.00 from holding Insignia Financial or generate 4.97% 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. Insignia Financial
Performance |
| Timeline |
| Commonwealth Bank |
| Insignia Financial |
Commonwealth Bank and Insignia Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Insignia Financial
The main advantage of trading using opposite Commonwealth Bank and Insignia Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Insignia Financial 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 Insignia Financial will offset losses from the drop in Insignia Financial'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 |
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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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