Correlation Between Change Financial and Commonwealth Bank

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

By analyzing existing cross correlation between Change Financial Limited and Commonwealth Bank of, you can compare the effects of market volatilities on Change Financial and Commonwealth Bank 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 Change Financial with a short position of Commonwealth Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Change Financial and Commonwealth Bank.

Diversification Opportunities for Change Financial and Commonwealth Bank

-0.41

Correlation Coefficient

Change Financial  Commonwealth Bank

Very good diversification

The 3 months correlation between Change and Commonwealth is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Change Financial Limited and Commonwealth Bank of in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Change Financial 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 Change Financial Limited are associated (or correlated) with Commonwealth Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commonwealth Bank has no effect on the direction of Change Financial i.e., Change Financial and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Change Financial and Commonwealth Bank

Assuming the 90 days trading horizon Change Financial Limited is expected to generate 14.38 times more return on investment than Commonwealth Bank. However, Change Financial is 14.38 times more volatile than Commonwealth Bank of. It trades about 0.02 of its potential returns per unit of risk. Commonwealth Bank of is currently generating about 0.06 per unit of risk. If you would invest  5.70  in Change Financial Limited on September 26, 2024 and sell it today you would lose (0.10) from holding Change Financial Limited or give up 1.75% of portfolio value over 90 days.

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

Change Financial Limited  vs.  Commonwealth Bank of

Change Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Change Financial Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic 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.

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.

Pair Trading with Change Financial and Commonwealth Bank

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

The idea behind Change Financial Limited and Commonwealth Bank of 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.