Correlation Between Commerce Bancshares and AKITA Drilling

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

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

Diversification Opportunities for Commerce Bancshares and AKITA Drilling

0.08

Correlation Coefficient

Commerce Bancshares  AKITA Drilling

Significant diversification

The 3 months correlation between Commerce and AKITA is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and AKITA Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AKITA Drilling 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 AKITA Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AKITA Drilling has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and AKITA Drilling go up and down completely randomly.

Pair Corralation between Commerce Bancshares and AKITA Drilling

Given the investment horizon of 90 days Commerce Bancshares is expected to under-perform the AKITA Drilling. But the stock apears to be less risky and, when comparing its historical volatility, Commerce Bancshares is 1.31 times less risky than AKITA Drilling. The stock trades about -0.47 of its potential returns per unit of risk. The AKITA Drilling is currently generating about -0.22 of returns per unit of risk over similar time horizon. If you would invest  118.00  in AKITA Drilling on September 26, 2024 and sell it today you would lose (8.00) from holding AKITA Drilling or give up 6.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Commerce Bancshares  vs.  AKITA Drilling

Commerce Bancshares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Bancshares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Commerce Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

AKITA Drilling

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AKITA Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AKITA Drilling is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Commerce Bancshares and AKITA Drilling

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

The idea behind Commerce Bancshares and AKITA Drilling 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.