Correlation Between CSL and Commonwealth Bank
Can any of the company-specific risk be diversified away by investing in both CSL and Commonwealth Bank 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 CSL and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CSL and Commonwealth Bank, you can compare the effects of market volatilities on CSL and Commonwealth Bank 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 CSL with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSL and Commonwealth Bank.
Diversification Opportunities for CSL and Commonwealth Bank
-0.53 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between CSL and Commonwealth is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding CSL and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and CSL 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 CSL are associated (or correlated) with Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of CSL i.e., CSL and Commonwealth Bank go up and down completely randomly.
Pair Corralation between CSL and Commonwealth Bank
Assuming the 90 days trading horizon CSL is expected to generate 14.14 times less return on investment than Commonwealth Bank. But when comparing it to its historical volatility, CSL is 1.19 times less risky than Commonwealth Bank. It trades about 0.02 of its potential returns per unit of risk. Commonwealth Bank is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 11,588 in Commonwealth Bank on August 28, 2024 and sell it today you would earn a total of 4,426 from holding Commonwealth Bank or generate 38.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CSL vs. Commonwealth Bank
Performance |
| Timeline |
| CSL |
| Commonwealth Bank |
CSL and Commonwealth Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CSL and Commonwealth Bank
The main advantage of trading using opposite CSL and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSL position performs unexpectedly, Commonwealth Bank 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 Commonwealth Bank will offset losses from the drop in Commonwealth Bank's long position.| CSL vs. Regal Investment | CSL vs. MFF Capital Investments | CSL vs. Mirrabooka Investments | CSL vs. Viva Leisure |
| Commonwealth Bank vs. National Australia Bank | Commonwealth Bank vs. National Australia Bank | Commonwealth Bank vs. Westpac Banking | Commonwealth Bank vs. National Australia Bank |
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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