Correlation Between Commonwealth Bank and Mount Gibson

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

Diversification Opportunities for Commonwealth Bank and Mount Gibson

0.36

Correlation Coefficient

Commonwealth Bank  Mount Gibson

Weak diversification

The 3 months correlation between Commonwealth and Mount is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Mount Gibson Iron in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mount Gibson Iron 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 Mount Gibson. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mount Gibson Iron has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Mount Gibson go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Mount Gibson

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 12.59 times less return on investment than Mount Gibson. But when comparing it to its historical volatility, Commonwealth Bank of is 6.28 times less risky than Mount Gibson. It trades about 0.04 of its potential returns per unit of risk. Mount Gibson Iron is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  28.00  in Mount Gibson Iron on September 4, 2024 and sell it today you would earn a total of  4.00  from holding Mount Gibson Iron or generate 14.29% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Mount Gibson Iron

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.

Mount Gibson Iron

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Mount Gibson Iron are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Mount Gibson unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Mount Gibson

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

The idea behind Commonwealth Bank of and Mount Gibson Iron 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..