Correlation Between Commonwealth Bank and US Bancorp

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Can any of the company-specific risk be diversified away by investing in both Commonwealth Bank and US Bancorp 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 US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commonwealth Bank and US Bancorp PERP, you can compare the effects of market volatilities on Commonwealth Bank and US Bancorp 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 US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commonwealth Bank and US Bancorp.

Diversification Opportunities for Commonwealth Bank and US Bancorp

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Commonwealth and USB-PA is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank Of and US Bancorp PERP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp PERP 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 are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp PERP has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and US Bancorp go up and down completely randomly.

Pair Corralation between Commonwealth Bank and US Bancorp

Assuming the 90 days horizon Commonwealth Bank is expected to generate 1.42 times less return on investment than US Bancorp. In addition to that, Commonwealth Bank is 1.35 times more volatile than US Bancorp PERP. It trades about 0.02 of its total potential returns per unit of risk. US Bancorp PERP is currently generating about 0.04 per unit of volatility. If you would invest  70,950  in US Bancorp PERP on December 30, 2023 and sell it today you would earn a total of  13,495  from holding US Bancorp PERP or generate 19.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Commonwealth Bank Of  vs.  US Bancorp PERP

 Performance 
       Timeline  
Commonwealth Bank 

Risk-Adjusted Performance

6 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank are ranked lower than 6 (%) 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 recent stock price disturbance, may contribute to short-term losses for the investors.
US Bancorp PERP 

Risk-Adjusted Performance

3 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp PERP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Commonwealth Bank and US Bancorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Commonwealth Bank and US Bancorp

The main advantage of trading using opposite Commonwealth Bank and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commonwealth Bank position performs unexpectedly, US Bancorp 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 US Bancorp will offset losses from the drop in US Bancorp's long position.
The idea behind Commonwealth Bank and US Bancorp PERP 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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