Correlation Between Commonwealth Bank and Woolworths

Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and Woolworths 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 Woolworths 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 Woolworths, you can compare the effects of market volatilities on Commonwealth Bank and Woolworths 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 Woolworths. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and Woolworths.

Diversification Opportunities for Commonwealth Bank and Woolworths

-0.86

Correlation Coefficient

Commonwealth Bank  Woolworths

Pay attention - limited upside

The 3 months correlation between Commonwealth and Woolworths is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Woolworths in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woolworths 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 Woolworths. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woolworths has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Woolworths go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Woolworths

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 114.25 times less return on investment than Woolworths. But when comparing it to its historical volatility, Commonwealth Bank of is 2.04 times less risky than Woolworths. It trades about 0.0 of its potential returns per unit of risk. Woolworths is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,989  in Woolworths on September 23, 2024 and sell it today you would earn a total of  29.00  from holding Woolworths or generate 0.97% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Woolworths

Commonwealth Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 5 (%) 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 current stock price disturbance, may contribute to short-term losses for the investors.

Woolworths

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Woolworths has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Commonwealth Bank and Woolworths

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

The idea behind Commonwealth Bank of and Woolworths 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.