Correlation Between CSL and Cochlear
Can any of the company-specific risk be diversified away by investing in both CSL and Cochlear 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 Cochlear into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CSL and Cochlear, you can compare the effects of market volatilities on CSL and Cochlear 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 Cochlear. Check out your portfolio center. Please also check ongoing floating volatility patterns of CSL and Cochlear.
Diversification Opportunities for CSL and Cochlear
Good diversification
The 3 months correlation between CSL and Cochlear is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding CSL and Cochlear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cochlear 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 Cochlear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cochlear has no effect on the direction of CSL i.e., CSL and Cochlear go up and down completely randomly.
Pair Corralation between CSL and Cochlear
Assuming the 90 days trading horizon CSL is expected to generate 1.85 times less return on investment than Cochlear. But when comparing it to its historical volatility, CSL is 1.55 times less risky than Cochlear. It trades about 0.03 of its potential returns per unit of risk. Cochlear is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 26,958 in Cochlear on August 29, 2024 and sell it today you would earn a total of 3,670 from holding Cochlear or generate 13.61% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CSL vs. Cochlear
Performance |
| Timeline |
| CSL |
| Cochlear |
CSL and Cochlear Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CSL and Cochlear
The main advantage of trading using opposite CSL and Cochlear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CSL position performs unexpectedly, Cochlear 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 Cochlear will offset losses from the drop in Cochlear's long position.| CSL vs. Bio Gene Technology | CSL vs. Viva Leisure | CSL vs. Sandon Capital Investments | CSL vs. Diversified United Investment |
| Cochlear vs. Hawsons Iron | Cochlear vs. Beston Global Food | Cochlear vs. Queste Communications | Cochlear vs. Charter Hall Education |
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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