Correlation Between Commonwealth Bank and Nomura Holdings

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

Diversification Opportunities for Commonwealth Bank and Nomura Holdings

0.86

Correlation Coefficient

Commonwealth Bank  Nomura Holdings

Very poor diversification

The 3 months correlation between Commonwealth and Nomura is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Nomura Holdings ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nomura Holdings ADR 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 Nomura Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nomura Holdings ADR has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Nomura Holdings go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Nomura Holdings

Assuming the 90 days horizon Commonwealth Bank is expected to generate 1.21 times less return on investment than Nomura Holdings. But when comparing it to its historical volatility, Commonwealth Bank of is 1.38 times less risky than Nomura Holdings. It trades about 0.06 of its potential returns per unit of risk. Nomura Holdings ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  379.00  in Nomura Holdings ADR on September 29, 2024 and sell it today you would earn a total of  207.00  from holding Nomura Holdings ADR or generate 54.62% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Nomura Holdings ADR

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.

Nomura Holdings ADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nomura Holdings ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal primary indicators, Nomura Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Commonwealth Bank and Nomura Holdings

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

The idea behind Commonwealth Bank of and Nomura Holdings ADR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.