Correlation Between COMMONWBK AUSTRSPADRS and BANK OCHINA

Can any of the company-specific risk be diversified away by investing in both COMMONWBK AUSTRSPADRS and BANK OCHINA 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 COMMONWBK AUSTRSPADRS and BANK OCHINA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between COMMONWBK AUSTRSPADRS and BANK OCHINA H, you can compare the effects of market volatilities on COMMONWBK AUSTRSPADRS and BANK OCHINA 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 COMMONWBK AUSTRSPADRS with a short position of BANK OCHINA. Check out your portfolio center. Please also check ongoing floating volatility patterns of COMMONWBK AUSTRSPADRS and BANK OCHINA.

Diversification Opportunities for COMMONWBK AUSTRSPADRS and BANK OCHINA

0.22

Correlation Coefficient

COMMONWBK AUSTRSPADRS  BANK OCHINA

Modest diversification

The 3 months correlation between COMMONWBK and BANK is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding COMMONWBK AUSTRSPADRS and BANK OCHINA H in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BANK OCHINA H and COMMONWBK AUSTRSPADRS 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 COMMONWBK AUSTRSPADRS are associated (or correlated) with BANK OCHINA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BANK OCHINA H has no effect on the direction of COMMONWBK AUSTRSPADRS i.e., COMMONWBK AUSTRSPADRS and BANK OCHINA go up and down completely randomly.

Pair Corralation between COMMONWBK AUSTRSPADRS and BANK OCHINA

Assuming the 90 days trading horizon COMMONWBK AUSTRSPADRS is expected to generate 0.51 times more return on investment than BANK OCHINA. However, COMMONWBK AUSTRSPADRS is 1.95 times less risky than BANK OCHINA. It trades about 0.14 of its potential returns per unit of risk. BANK OCHINA H is currently generating about 0.03 per unit of risk. If you would invest  8,600  in COMMONWBK AUSTRSPADRS on September 2, 2024 and sell it today you would earn a total of  1,050  from holding COMMONWBK AUSTRSPADRS or generate 12.21% return on investment over 90 days.

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

COMMONWBK AUSTRSPADRS  vs.  BANK OCHINA H

COMMONWBK AUSTRSPADRS

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COMMONWBK AUSTRSPADRS are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COMMONWBK AUSTRSPADRS may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BANK OCHINA H

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days BANK OCHINA H has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BANK OCHINA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with COMMONWBK AUSTRSPADRS and BANK OCHINA

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

The idea behind COMMONWBK AUSTRSPADRS and BANK OCHINA H 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.