Correlation Between Commonwealth Bank and TPG Telecom
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and TPG Telecom 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 TPG Telecom 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 TPG Telecom, you can compare the effects of market volatilities on Commonwealth Bank and TPG Telecom 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 TPG Telecom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and TPG Telecom.
Diversification Opportunities for Commonwealth Bank and TPG Telecom
-0.11 | Correlation Coefficient |
Good diversification
The 3 months correlation between Commonwealth and TPG is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and TPG Telecom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TPG Telecom 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 TPG Telecom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TPG Telecom has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and TPG Telecom go up and down completely randomly.
Pair Corralation between Commonwealth Bank and TPG Telecom
Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 6.05 times less return on investment than TPG Telecom. But when comparing it to its historical volatility, Commonwealth Bank of is 5.65 times less risky than TPG Telecom. It trades about 0.17 of its potential returns per unit of risk. TPG Telecom is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 431.00 in TPG Telecom on November 27, 2024 and sell it today you would earn a total of 19.00 from holding TPG Telecom or generate 4.41% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. TPG Telecom
Performance |
| Timeline |
| Commonwealth Bank |
| TPG Telecom |
Commonwealth Bank and TPG Telecom Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and TPG Telecom
The main advantage of trading using opposite Commonwealth Bank and TPG Telecom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, TPG Telecom 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 TPG Telecom will offset losses from the drop in TPG Telecom's long position.The idea behind Commonwealth Bank of and TPG Telecom 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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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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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