Correlation Between Commerce Bancshares and Affinity Bancshares

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

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

Diversification Opportunities for Commerce Bancshares and Affinity Bancshares

0.44

Correlation Coefficient

Commerce Bancshares  Affinity Bancshares

Very weak diversification

The 3 months correlation between Commerce and Affinity is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and Affinity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Affinity Bancshares and Commerce Bancshares 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 Commerce Bancshares are associated (or correlated) with Affinity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Affinity Bancshares has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and Affinity Bancshares go up and down completely randomly.

Pair Corralation between Commerce Bancshares and Affinity Bancshares

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 1.41 times less return on investment than Affinity Bancshares. But when comparing it to its historical volatility, Commerce Bancshares is 1.33 times less risky than Affinity Bancshares. It trades about 0.03 of its potential returns per unit of risk. Affinity Bancshares is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,570  in Affinity Bancshares on November 20, 2024 and sell it today you would earn a total of  283.00  from holding Affinity Bancshares or generate 18.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.39%
Values	Daily Returns

Commerce Bancshares  vs.  Affinity Bancshares

Commerce Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Commerce Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Commerce Bancshares is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Affinity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Affinity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Commerce Bancshares and Affinity Bancshares

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

The idea behind Commerce Bancshares and Affinity 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.