Correlation Between Citigroup and Commerce Bancshares

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

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

Diversification Opportunities for Citigroup and Commerce Bancshares

0.88

Correlation Coefficient

Citigroup  Commerce Bancshares

Very poor diversification

The 3 months correlation between Citigroup and Commerce is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and Citigroup 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 Citigroup are associated (or correlated) with Commerce Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Bancshares has no effect on the direction of Citigroup i.e., Citigroup and Commerce Bancshares go up and down completely randomly.

Pair Corralation between Citigroup and Commerce Bancshares

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.04 times less return on investment than Commerce Bancshares. But when comparing it to its historical volatility, Citigroup is 1.05 times less risky than Commerce Bancshares. It trades about 0.09 of its potential returns per unit of risk. Commerce Bancshares is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,387  in Commerce Bancshares on October 7, 2024 and sell it today you would earn a total of  1,613  from holding Commerce Bancshares or generate 36.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.56%
Values	Daily Returns

Citigroup  vs.  Commerce Bancshares

Citigroup

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

Commerce Bancshares

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Citigroup and Commerce Bancshares

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

The idea behind Citigroup and Commerce Bancshares 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.