Correlation Between Commonwealth Bank and Cochlear

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Cochlear 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 Cochlear into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Commonwealth Bank and Cochlear, you can compare the effects of market volatilities on Commonwealth Bank and Cochlear 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 Cochlear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Cochlear.

Diversification Opportunities for Commonwealth Bank and Cochlear

0.72

Correlation Coefficient

Commonwealth Bank  Cochlear

Poor diversification

The 3 months correlation between Commonwealth and Cochlear is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Cochlear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cochlear 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 are associated (or correlated) with Cochlear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cochlear has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Cochlear go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Cochlear

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.96 times more return on investment than Cochlear. However, Commonwealth Bank is 1.04 times less risky than Cochlear. It trades about 0.15 of its potential returns per unit of risk. Cochlear is currently generating about 0.03 per unit of risk. If you would invest  14,165  in Commonwealth Bank on September 13, 2024 and sell it today you would earn a total of  1,587  from holding Commonwealth Bank or generate 11.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Commonwealth Bank  vs.  Cochlear

Commonwealth Bank

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cochlear

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cochlear are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical indicators, Cochlear is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Commonwealth Bank and Cochlear

The main advantage of trading using opposite Commonwealth Bank and Cochlear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, Cochlear 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 Cochlear will offset losses from the drop in Cochlear's long position.

The idea behind Commonwealth Bank and Cochlear 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.