Correlation Between Commerce Bancshares and Melrose Industries

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

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

Diversification Opportunities for Commerce Bancshares and Melrose Industries

0.85

Correlation Coefficient

Commerce Bancshares  Melrose Industries

Very poor diversification

The 3 months correlation between Commerce and Melrose is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and Melrose Industries PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Melrose Industries PLC 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 Melrose Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Melrose Industries PLC has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and Melrose Industries go up and down completely randomly.

Pair Corralation between Commerce Bancshares and Melrose Industries

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 0.4 times more return on investment than Melrose Industries. However, Commerce Bancshares is 2.52 times less risky than Melrose Industries. It trades about 0.09 of its potential returns per unit of risk. Melrose Industries PLC is currently generating about 0.02 per unit of risk. If you would invest  5,269  in Commerce Bancshares on September 26, 2024 and sell it today you would earn a total of  1,007  from holding Commerce Bancshares or generate 19.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.21%
Values	Daily Returns

Commerce Bancshares  vs.  Melrose Industries PLC

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.

Melrose Industries PLC

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Melrose Industries PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Melrose Industries reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commerce Bancshares and Melrose Industries

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

The idea behind Commerce Bancshares and Melrose Industries PLC 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.