Correlation Between Commonwealth Bank and Bank of America
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Bank of America 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 Bank of America 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 Bank of America, you can compare the effects of market volatilities on Commonwealth Bank and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Bank of America.
Diversification Opportunities for Commonwealth Bank and Bank of America
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Commonwealth and Bank is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Bank of America go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Bank of America
Assuming the 90 days horizon Commonwealth Bank of is expected to generate 2.54 times more return on investment than Bank of America. However, Commonwealth Bank is 2.54 times more volatile than Bank of America. It trades about 0.32 of its potential returns per unit of risk. Bank of America is currently generating about 0.11 per unit of risk. If you would invest 9,508 in Commonwealth Bank of on August 26, 2024 and sell it today you would earn a total of 872.00 from holding Commonwealth Bank of or generate 9.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. Bank of America
Performance |
| Timeline |
| Commonwealth Bank |
| Bank of America |
Commonwealth Bank and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Bank of America
The main advantage of trading using opposite Commonwealth Bank and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| Commonwealth Bank vs. ANZ Group Holdings | Commonwealth Bank vs. Agricultural Bank | Commonwealth Bank vs. Industrial and Commercial | Commonwealth Bank vs. Bank of America |
| Bank of America vs. Bank of America | Bank of America vs. China Construction Bank | Bank of America vs. Wells Fargo | Bank of America vs. Wells Fargo |
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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