Correlation Between Commonwealth Bank and Native Mineral

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

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

Diversification Opportunities for Commonwealth Bank and Native Mineral

0.69

Correlation Coefficient

Commonwealth Bank  Native Mineral

Poor diversification

The 3 months correlation between Commonwealth and Native is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Native Mineral Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Native Mineral Resources 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 of are associated (or correlated) with Native Mineral. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Native Mineral Resources has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Native Mineral go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Native Mineral

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 24.45 times less return on investment than Native Mineral. But when comparing it to its historical volatility, Commonwealth Bank of is 35.37 times less risky than Native Mineral. It trades about 0.07 of its potential returns per unit of risk. Native Mineral Resources is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.00  in Native Mineral Resources on August 31, 2024 and sell it today you would earn a total of  0.50  from holding Native Mineral Resources or generate 16.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.75%
Values	Daily Returns

Commonwealth Bank of  vs.  Native Mineral Resources

Commonwealth Bank

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Commonwealth Bank is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Native Mineral Resources

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Native Mineral Resources are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Native Mineral unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Native Mineral

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

The idea behind Commonwealth Bank of and Native Mineral Resources 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.