Correlation Between Commonwealth Bank and Bluescope Steel

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

Diversification Opportunities for Commonwealth Bank and Bluescope Steel

-0.43

Correlation Coefficient

Commonwealth Bank  Bluescope Steel

Very good diversification

The 3 months correlation between Commonwealth and Bluescope is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Bluescope Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bluescope Steel 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 Bluescope Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bluescope Steel has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Bluescope Steel go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Bluescope Steel

Assuming the 90 days trading horizon Commonwealth Bank of is expected to generate 0.23 times more return on investment than Bluescope Steel. However, Commonwealth Bank of is 4.43 times less risky than Bluescope Steel. It trades about 0.04 of its potential returns per unit of risk. Bluescope Steel is currently generating about -0.09 per unit of risk. If you would invest  10,167  in Commonwealth Bank of on October 1, 2024 and sell it today you would earn a total of  111.00  from holding Commonwealth Bank of or generate 1.09% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Bluescope Steel

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 current stock price disturbance, may contribute to short-term losses for the investors.

Bluescope Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bluescope Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's essential 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 Bluescope Steel

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

The idea behind Commonwealth Bank of and Bluescope Steel 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..