Correlation Between Commonwealth Bank and Vale SA
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Vale SA 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 Vale SA 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 Vale SA, you can compare the effects of market volatilities on Commonwealth Bank and Vale SA 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 Vale SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Vale SA.
Diversification Opportunities for Commonwealth Bank and Vale SA
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Commonwealth and Vale is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Vale SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vale SA 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 Vale SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vale SA has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Vale SA go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Vale SA
Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.66 times more return on investment than Vale SA. However, Commonwealth Bank of is 1.51 times less risky than Vale SA. It trades about 0.08 of its potential returns per unit of risk. Vale SA is currently generating about -0.02 per unit of risk. If you would invest 5,946 in Commonwealth Bank of on September 3, 2024 and sell it today you would earn a total of 3,790 from holding Commonwealth Bank of or generate 63.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. Vale SA
Performance |
| Timeline |
| Commonwealth Bank |
| Vale SA |
Commonwealth Bank and Vale SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Vale SA
The main advantage of trading using opposite Commonwealth Bank and Vale SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Vale SA 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 Vale SA will offset losses from the drop in Vale SA's long position.The idea behind Commonwealth Bank of and Vale SA 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.| Vale SA vs. Commonwealth Bank of | Vale SA vs. JAPAN TOBACCO UNSPADR12 | Vale SA vs. BRIT AMER TOBACCO | Vale SA vs. UNIVMUSIC GRPADR050 |
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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