Correlation Between Red Hill and Commonwealth Bank
Can any of the company-specific risk be diversified away by investing in both Red Hill 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 Red Hill and Commonwealth Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Red Hill Iron and Commonwealth Bank, you can compare the effects of market volatilities on Red Hill 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 Red Hill with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Red Hill and Commonwealth Bank.
Diversification Opportunities for Red Hill and Commonwealth Bank
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Red and Commonwealth is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Red Hill Iron and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Red Hill 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 Red Hill Iron 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 Red Hill i.e., Red Hill and Commonwealth Bank go up and down completely randomly.
Pair Corralation between Red Hill and Commonwealth Bank
Assuming the 90 days trading horizon Red Hill is expected to generate 1.04 times less return on investment than Commonwealth Bank. In addition to that, Red Hill is 2.57 times more volatile than Commonwealth Bank. It trades about 0.04 of its total potential returns per unit of risk. Commonwealth Bank is currently generating about 0.1 per unit of volatility. If you would invest 9,740 in Commonwealth Bank on September 12, 2024 and sell it today you would earn a total of 6,023 from holding Commonwealth Bank or generate 61.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Red Hill Iron vs. Commonwealth Bank
Performance |
| Timeline |
| Red Hill Iron |
| Commonwealth Bank |
Red Hill and Commonwealth Bank Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Red Hill and Commonwealth Bank
The main advantage of trading using opposite Red Hill and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Red Hill 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.| Red Hill vs. Northern Star Resources | Red Hill vs. Evolution Mining | Red Hill vs. Bluescope Steel | Red Hill vs. Sandfire Resources NL |
| Commonwealth Bank vs. Aristocrat Leisure | Commonwealth Bank vs. Hawsons Iron | Commonwealth Bank vs. Red Hill Iron | Commonwealth Bank vs. Legacy Iron Ore |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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