Correlation Between Commerce Bancshares and Home Bancorp

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

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

Diversification Opportunities for Commerce Bancshares and Home Bancorp

0.91

Correlation Coefficient

Commerce Bancshares  Home Bancorp

Almost no diversification

The 3 months correlation between Commerce and Home is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and Home Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Bancorp 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 Home Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Bancorp has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and Home Bancorp go up and down completely randomly.

Pair Corralation between Commerce Bancshares and Home Bancorp

Given the investment horizon of 90 days Commerce Bancshares is expected to under-perform the Home Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Commerce Bancshares is 1.39 times less risky than Home Bancorp. The stock trades about -0.01 of its potential returns per unit of risk. The Home Bancorp is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,573  in Home Bancorp on December 28, 2024 and sell it today you would lose (43.00) from holding Home Bancorp or give up 0.94% of portfolio value over 90 days.

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

Commerce Bancshares  vs.  Home Bancorp

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.

Home Bancorp

Risk-Adjusted Performance

Weak

Over the last 90 days Home Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Home Bancorp is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Commerce Bancshares and Home Bancorp

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

The idea behind Commerce Bancshares and Home Bancorp 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.