Correlation Between Commonwealth Bank and National Bank
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and National 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 Commonwealth Bank and National Bank 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 National Bank Holdings, you can compare the effects of market volatilities on Commonwealth Bank and National 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 Commonwealth Bank with a short position of National Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and National Bank.
Diversification Opportunities for Commonwealth Bank and National Bank
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and National is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and National Bank Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Bank Holdings 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 National Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Bank Holdings has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and National Bank go up and down completely randomly.
Pair Corralation between Commonwealth Bank and National Bank
Assuming the 90 days horizon Commonwealth Bank of is expected to generate 0.58 times more return on investment than National Bank. However, Commonwealth Bank of is 1.73 times less risky than National Bank. It trades about 0.08 of its potential returns per unit of risk. National Bank Holdings is currently generating about 0.02 per unit of risk. If you would invest 5,929 in Commonwealth Bank of on August 30, 2024 and sell it today you would earn a total of 4,015 from holding Commonwealth Bank of or generate 67.72% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commonwealth Bank of vs. National Bank Holdings
Performance |
| Timeline |
| Commonwealth Bank |
| National Bank Holdings |
Commonwealth Bank and National Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and National Bank
The main advantage of trading using opposite Commonwealth Bank and National Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, National 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 National Bank will offset losses from the drop in National Bank's long position.| Commonwealth Bank vs. HSBC Holdings plc | Commonwealth Bank vs. Agricultural Bank of | Commonwealth Bank vs. Superior Plus Corp | Commonwealth Bank vs. NMI Holdings |
| National Bank vs. Austevoll Seafood ASA | National Bank vs. Webster Financial | National Bank vs. CONAGRA FOODS | National Bank vs. Beyond Meat |
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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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