Correlation Between Commerce Bancshares and Hawaiian Electric

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

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

Diversification Opportunities for Commerce Bancshares and Hawaiian Electric

-0.29

Correlation Coefficient

Commerce Bancshares  Hawaiian Electric

Very good diversification

The 3 months correlation between Commerce and Hawaiian is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and Hawaiian Electric in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hawaiian Electric 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 Hawaiian Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hawaiian Electric has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and Hawaiian Electric go up and down completely randomly.

Pair Corralation between Commerce Bancshares and Hawaiian Electric

Given the investment horizon of 90 days Commerce Bancshares is expected to under-perform the Hawaiian Electric. But the stock apears to be less risky and, when comparing its historical volatility, Commerce Bancshares is 2.09 times less risky than Hawaiian Electric. The stock trades about -0.35 of its potential returns per unit of risk. The Hawaiian Electric is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,550  in Hawaiian Electric on October 10, 2024 and sell it today you would earn a total of  102.00  from holding Hawaiian Electric or generate 6.58% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Commerce Bancshares  vs.  Hawaiian Electric

Commerce Bancshares

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Bancshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Commerce Bancshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Hawaiian Electric

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hawaiian Electric are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Hawaiian Electric disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commerce Bancshares and Hawaiian Electric

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

The idea behind Commerce Bancshares and Hawaiian Electric 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.