Correlation Between Commonwealth Bank and Webster Financial
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Webster Financial 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 Webster Financial 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 Webster Financial, you can compare the effects of market volatilities on Commonwealth Bank and Webster Financial 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 Webster Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Webster Financial.
Diversification Opportunities for Commonwealth Bank and Webster Financial
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Commonwealth and Webster is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Webster Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Webster Financial 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 Webster Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Webster Financial has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Webster Financial go up and down completely randomly.
Pair Corralation between Commonwealth Bank and Webster Financial
Assuming the 90 days horizon Commonwealth Bank is expected to generate 1.22 times less return on investment than Webster Financial. But when comparing it to its historical volatility, Commonwealth Bank of is 1.98 times less risky than Webster Financial. It trades about 0.19 of its potential returns per unit of risk. Webster Financial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 3,852 in Webster Financial on August 28, 2024 and sell it today you would earn a total of 1,798 from holding Webster Financial or generate 46.68% 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. Webster Financial
Performance |
| Timeline |
| Commonwealth Bank |
| Webster Financial |
Commonwealth Bank and Webster Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and Webster Financial
The main advantage of trading using opposite Commonwealth Bank and Webster Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Webster Financial 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 Webster Financial will offset losses from the drop in Webster Financial's long position.| Commonwealth Bank vs. Superior Plus Corp | Commonwealth Bank vs. NMI Holdings | Commonwealth Bank vs. Origin Agritech | Commonwealth Bank vs. SIVERS SEMICONDUCTORS AB |
| Webster Financial vs. Superior Plus Corp | Webster Financial vs. NMI Holdings | Webster Financial vs. Origin Agritech | Webster Financial vs. SIVERS SEMICONDUCTORS AB |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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