Correlation Between Commonwealth Bank and Itech Minerals

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

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

Diversification Opportunities for Commonwealth Bank and Itech Minerals

-0.72

Correlation Coefficient

Commonwealth Bank  Itech Minerals

Pay attention - limited upside

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

Pair Corralation between Commonwealth Bank and Itech Minerals

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 0.3 times more return on investment than Itech Minerals. However, Commonwealth Bank is 3.3 times less risky than Itech Minerals. It trades about 0.13 of its potential returns per unit of risk. Itech Minerals is currently generating about -0.23 per unit of risk. If you would invest  15,284  in Commonwealth Bank on September 15, 2024 and sell it today you would earn a total of  537.00  from holding Commonwealth Bank or generate 3.51% return on investment over 90 days.

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

Commonwealth Bank  vs.  Itech Minerals

Commonwealth Bank

Risk-Adjusted Performance

11 of 100

Good

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.

Itech Minerals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Itech Minerals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Commonwealth Bank and Itech Minerals

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

The idea behind Commonwealth Bank and Itech Minerals 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.