Correlation Between Community Bank and Commerce Bancshares

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

By analyzing existing cross correlation between Community Bank System and Commerce Bancshares, you can compare the effects of market volatilities on Community Bank and Commerce Bancshares 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 Community Bank with a short position of Commerce Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community Bank and Commerce Bancshares.

Diversification Opportunities for Community Bank and Commerce Bancshares

0.94

Correlation Coefficient

Community Bank  Commerce Bancshares

Almost no diversification

The 3 months correlation between Community and Commerce is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Community Bank System and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and Community Bank 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 Community Bank System are associated (or correlated) with Commerce Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Bancshares has no effect on the direction of Community Bank i.e., Community Bank and Commerce Bancshares go up and down completely randomly.

Pair Corralation between Community Bank and Commerce Bancshares

Considering the 90-day investment horizon Community Bank System is expected to under-perform the Commerce Bancshares. In addition to that, Community Bank is 1.28 times more volatile than Commerce Bancshares. It trades about -0.07 of its total potential returns per unit of risk. Commerce Bancshares is currently generating about -0.01 per unit of volatility. If you would invest  6,225  in Commerce Bancshares on December 30, 2024 and sell it today you would lose (63.00) from holding Commerce Bancshares or give up 1.01% of portfolio value over 90 days.

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

Community Bank System  vs.  Commerce Bancshares

Community Bank System

Risk-Adjusted Performance

Very Weak

Over the last 90 days Community Bank System has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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.

Pair Trading with Community Bank and Commerce Bancshares

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

The idea behind Community Bank System and Commerce Bancshares 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..