Correlation Between INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS

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

By analyzing existing cross correlation between INDCOMMBK CHINA ADR20 and COMMONWBK AUSTRSPADRS, you can compare the effects of market volatilities on INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS 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 INDCOMMBK CHINA with a short position of COMMONWBK AUSTRSPADRS. Check out your portfolio center. Please also check ongoing floating volatility patterns of INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS.

Diversification Opportunities for INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS

0.44

Correlation Coefficient

INDCOMMBK CHINA  COMMONWBK AUSTRSPADRS

Very weak diversification

The 3 months correlation between INDCOMMBK and COMMONWBK is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding INDCOMMBK CHINA ADR20 and COMMONWBK AUSTRSPADRS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMMONWBK AUSTRSPADRS and INDCOMMBK CHINA 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 INDCOMMBK CHINA ADR20 are associated (or correlated) with COMMONWBK AUSTRSPADRS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMMONWBK AUSTRSPADRS has no effect on the direction of INDCOMMBK CHINA i.e., INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS go up and down completely randomly.

Pair Corralation between INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS

Assuming the 90 days trading horizon INDCOMMBK CHINA ADR20 is expected to generate 1.92 times more return on investment than COMMONWBK AUSTRSPADRS. However, INDCOMMBK CHINA is 1.92 times more volatile than COMMONWBK AUSTRSPADRS. It trades about 0.13 of its potential returns per unit of risk. COMMONWBK AUSTRSPADRS is currently generating about 0.14 per unit of risk. If you would invest  1,040  in INDCOMMBK CHINA ADR20 on September 29, 2024 and sell it today you would earn a total of  210.00  from holding INDCOMMBK CHINA ADR20 or generate 20.19% return on investment over 90 days.

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

INDCOMMBK CHINA ADR20  vs.  COMMONWBK AUSTRSPADRS

INDCOMMBK CHINA ADR20

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in INDCOMMBK CHINA ADR20 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, INDCOMMBK CHINA reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with INDCOMMBK CHINA and COMMONWBK AUSTRSPADRS

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

The idea behind INDCOMMBK CHINA ADR20 and COMMONWBK AUSTRSPADRS 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.