Correlation Between Commonwealth Bank and NiSource

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

Diversification Opportunities for Commonwealth Bank and NiSource

0.9

Correlation Coefficient

Commonwealth Bank  NiSource

Almost no diversification

The 3 months correlation between Commonwealth and NiSource is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and NiSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NiSource 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 NiSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NiSource has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and NiSource go up and down completely randomly.

Pair Corralation between Commonwealth Bank and NiSource

Assuming the 90 days horizon Commonwealth Bank is expected to generate 1.69 times less return on investment than NiSource. In addition to that, Commonwealth Bank is 1.37 times more volatile than NiSource. It trades about 0.05 of its total potential returns per unit of risk. NiSource is currently generating about 0.12 per unit of volatility. If you would invest  3,386  in NiSource on September 26, 2024 and sell it today you would earn a total of  258.00  from holding NiSource or generate 7.62% return on investment over 90 days.

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

Commonwealth Bank of  vs.  NiSource

Commonwealth Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly 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.

NiSource

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NiSource are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward indicators, NiSource may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Commonwealth Bank and NiSource

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

The idea behind Commonwealth Bank of and NiSource 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..