Correlation Between Commonwealth Bank and China Construction
Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and China Construction 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 China Construction 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 China Construction Bank, you can compare the effects of market volatilities on Commonwealth Bank and China Construction 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 China Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and China Construction.
Diversification Opportunities for Commonwealth Bank and China Construction
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Commonwealth and China is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and China Construction Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Construction 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 China Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Construction Bank has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and China Construction go up and down completely randomly.
Pair Corralation between Commonwealth Bank and China Construction
Assuming the 90 days horizon Commonwealth Bank is expected to generate 2.06 times less return on investment than China Construction. But when comparing it to its historical volatility, Commonwealth Bank of is 3.58 times less risky than China Construction. It trades about 0.05 of its potential returns per unit of risk. China Construction Bank is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 59.00 in China Construction Bank on January 25, 2024 and sell it today you would earn a total of 2.00 from holding China Construction Bank or generate 3.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 97.8% |
| Values | Daily Returns |
Commonwealth Bank of vs. China Construction Bank
Performance |
| Timeline |
| Commonwealth Bank |
| China Construction Bank |
Commonwealth Bank and China Construction Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commonwealth Bank and China Construction
The main advantage of trading using opposite Commonwealth Bank and China Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, China Construction 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 China Construction will offset losses from the drop in China Construction's long position.| Commonwealth Bank vs. Svenska Handelsbanken PK | Commonwealth Bank vs. ANZ Group Holdings | Commonwealth Bank vs. National Australia Bank | Commonwealth Bank vs. Bank of America |
| China Construction vs. Svenska Handelsbanken PK | China Construction vs. ANZ Group Holdings | China Construction vs. National Australia Bank | China Construction vs. Bank of America |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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