Correlation Between Comerica and Exchange Bank

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

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

Diversification Opportunities for Comerica and Exchange Bank

0.38

Correlation Coefficient

Comerica  Exchange Bank

Weak diversification

The 3 months correlation between Comerica and Exchange is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Comerica and Exchange Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exchange Bank and Comerica 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 Comerica are associated (or correlated) with Exchange Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exchange Bank has no effect on the direction of Comerica i.e., Comerica and Exchange Bank go up and down completely randomly.

Pair Corralation between Comerica and Exchange Bank

Considering the 90-day investment horizon Comerica is expected to under-perform the Exchange Bank. But the stock apears to be less risky and, when comparing its historical volatility, Comerica is 1.81 times less risky than Exchange Bank. The stock trades about -0.02 of its potential returns per unit of risk. The Exchange Bank is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  10,870  in Exchange Bank on December 21, 2024 and sell it today you would earn a total of  505.00  from holding Exchange Bank or generate 4.65% return on investment over 90 days.

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

Comerica  vs.  Exchange Bank

Comerica

Risk-Adjusted Performance

Very Weak

Over the last 90 days Comerica has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong primary indicators, Comerica is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Exchange Bank

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Exchange Bank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Exchange Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Comerica and Exchange Bank

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

The idea behind Comerica and Exchange Bank 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.