Correlation Between Commerce Bancshares and Natera

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

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

Diversification Opportunities for Commerce Bancshares and Natera

0.85

Correlation Coefficient

Commerce Bancshares  Natera

Very poor diversification

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

Pair Corralation between Commerce Bancshares and Natera

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 3.71 times less return on investment than Natera. But when comparing it to its historical volatility, Commerce Bancshares is 1.83 times less risky than Natera. It trades about 0.07 of its potential returns per unit of risk. Natera Inc is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  12,354  in Natera Inc on September 23, 2024 and sell it today you would earn a total of  3,834  from holding Natera Inc or generate 31.03% return on investment over 90 days.

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

Commerce Bancshares  vs.  Natera Inc

Commerce Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Commerce Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Natera Inc

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Natera Inc are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Natera sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commerce Bancshares and Natera

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

The idea behind Commerce Bancshares and Natera Inc 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.