Correlation Between Commonwealth Bank and Agricultural Bank

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

Diversification Opportunities for Commonwealth Bank and Agricultural Bank

0.02

Correlation Coefficient

Commonwealth Bank  Agricultural Bank

Significant diversification

The 3 months correlation between Commonwealth and Agricultural is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Agricultural Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Agricultural Bank 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 Agricultural Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Agricultural Bank has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Agricultural Bank go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Agricultural Bank

Assuming the 90 days horizon Commonwealth Bank is expected to generate 1.71 times less return on investment than Agricultural Bank. But when comparing it to its historical volatility, Commonwealth Bank of is 2.45 times less risky than Agricultural Bank. It trades about 0.1 of its potential returns per unit of risk. Agricultural Bank is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  42.00  in Agricultural Bank on September 4, 2024 and sell it today you would earn a total of  5.00  from holding Agricultural Bank or generate 11.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Commonwealth Bank of  vs.  Agricultural Bank

Commonwealth Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Agricultural Bank

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Agricultural Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental drivers, Agricultural Bank reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Agricultural Bank

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

The idea behind Commonwealth Bank of and Agricultural 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.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.