Correlation Between Collins Foods and Commonwealth Bank

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

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

Diversification Opportunities for Collins Foods and Commonwealth Bank

-0.55

Correlation Coefficient

Collins Foods  Commonwealth Bank

Excellent diversification

The 3 months correlation between Collins and Commonwealth is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Collins Foods and Commonwealth Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commonwealth Bank and Collins Foods 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 Collins Foods 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 Collins Foods i.e., Collins Foods and Commonwealth Bank go up and down completely randomly.

Pair Corralation between Collins Foods and Commonwealth Bank

Assuming the 90 days trading horizon Collins Foods is expected to under-perform the Commonwealth Bank. In addition to that, Collins Foods is 1.04 times more volatile than Commonwealth Bank. It trades about -0.17 of its total potential returns per unit of risk. Commonwealth Bank is currently generating about 0.19 per unit of volatility. If you would invest  13,435  in Commonwealth Bank on September 26, 2024 and sell it today you would earn a total of  2,077  from holding Commonwealth Bank or generate 15.46% return on investment over 90 days.

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

Collins Foods  vs.  Commonwealth Bank

Collins Foods

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Collins Foods has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental 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

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Commonwealth Bank unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Collins Foods and Commonwealth Bank

The main advantage of trading using opposite Collins Foods and Commonwealth Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Collins Foods 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 Collins Foods and Commonwealth Bank 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.