Correlation Between Commonwealth Bank and Smartpay Holdings

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

Diversification Opportunities for Commonwealth Bank and Smartpay Holdings

0.5

Correlation Coefficient

Commonwealth Bank  Smartpay Holdings

Very weak diversification

The 3 months correlation between Commonwealth and Smartpay is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Smartpay Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smartpay Holdings 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 Smartpay Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smartpay Holdings has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Smartpay Holdings go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Smartpay Holdings

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 4.28 times less return on investment than Smartpay Holdings. But when comparing it to its historical volatility, Commonwealth Bank of is 3.24 times less risky than Smartpay Holdings. It trades about 0.13 of its potential returns per unit of risk. Smartpay Holdings is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  73.00  in Smartpay Holdings on April 20, 2025 and sell it today you would earn a total of  29.00  from holding Smartpay Holdings or generate 39.73% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Smartpay Holdings

Commonwealth Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Commonwealth Bank may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Smartpay Holdings

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smartpay Holdings are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Smartpay Holdings unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commonwealth Bank and Smartpay Holdings

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

The idea behind Commonwealth Bank of and Smartpay Holdings 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.