Correlation Between Ford and Commonwealth Bank
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Commonwealth Bank of, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Commonwealth Bank.
Diversification Opportunities for Ford and Commonwealth Bank
0.04 | Correlation Coefficient |
Significant diversification
The 3 months correlation between Ford and Commonwealth is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Commonwealth Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Ford 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 Ford Motor 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 Ford i.e., Ford and Commonwealth Bank go up and down completely randomly.
Pair Corralation between Ford and Commonwealth Bank
Taking into account the 90-day investment horizon Ford Motor is expected to generate 6.89 times more return on investment than Commonwealth Bank. However, Ford is 6.89 times more volatile than Commonwealth Bank of. It trades about 0.06 of its potential returns per unit of risk. Commonwealth Bank of is currently generating about 0.04 per unit of risk. If you would invest 1,064 in Ford Motor on August 28, 2024 and sell it today you would earn a total of 46.00 from holding Ford Motor or generate 4.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Commonwealth Bank of
Performance |
| Timeline |
| Ford Motor |
| Commonwealth Bank |
Ford and Commonwealth Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Commonwealth Bank
The main advantage of trading using opposite Ford and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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.The idea behind Ford Motor and Commonwealth Bank of 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.| Commonwealth Bank vs. Dicker Data | Commonwealth Bank vs. Australian Agricultural | Commonwealth Bank vs. Janison Education Group | Commonwealth Bank vs. Aristocrat Leisure |
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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