Correlation Between Commonwealth Bank and Fisher Paykel

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

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

Diversification Opportunities for Commonwealth Bank and Fisher Paykel

0.79

Correlation Coefficient

Commonwealth Bank  Fisher Paykel

Poor diversification

The 3 months correlation between Commonwealth and Fisher is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank and Fisher Paykel Healthcare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fisher Paykel Healthcare 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 Fisher Paykel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fisher Paykel Healthcare has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Fisher Paykel go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Fisher Paykel

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.75 times more return on investment than Fisher Paykel. However, Commonwealth Bank is 1.33 times less risky than Fisher Paykel. It trades about 0.14 of its potential returns per unit of risk. Fisher Paykel Healthcare is currently generating about 0.1 per unit of risk. If you would invest  12,394  in Commonwealth Bank on September 25, 2024 and sell it today you would earn a total of  3,074  from holding Commonwealth Bank or generate 24.8% 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.  Fisher Paykel Healthcare

Commonwealth Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Fisher Paykel Healthcare

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fisher Paykel Healthcare are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain technical indicators, Fisher Paykel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Commonwealth Bank and Fisher Paykel

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

The idea behind Commonwealth Bank and Fisher Paykel Healthcare 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.