Correlation Between Commonwealth Bank and Telstra

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

Diversification Opportunities for Commonwealth Bank and Telstra

0.85

Correlation Coefficient

Commonwealth Bank  Telstra

Very poor diversification

The 3 months correlation between Commonwealth and Telstra is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Commonwealth Bank of and Telstra Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telstra Group 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 Telstra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telstra Group has no effect on the direction of Commonwealth Bank i.e., Commonwealth Bank and Telstra go up and down completely randomly.

Pair Corralation between Commonwealth Bank and Telstra

Assuming the 90 days trading horizon Commonwealth Bank is expected to generate 1.44 times less return on investment than Telstra. In addition to that, Commonwealth Bank is 1.58 times more volatile than Telstra Group. It trades about 0.09 of its total potential returns per unit of risk. Telstra Group is currently generating about 0.22 per unit of volatility. If you would invest  448.00  in Telstra Group on April 25, 2025 and sell it today you would earn a total of  44.00  from holding Telstra Group or generate 9.82% return on investment over 90 days.

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

Commonwealth Bank of  vs.  Telstra Group

Commonwealth Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commonwealth Bank of are ranked lower than 7 (%) 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.

Telstra Group

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Telstra Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Telstra may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Commonwealth Bank and Telstra

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

The idea behind Commonwealth Bank of and Telstra Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.