Correlation Between Comerica and Main Street

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

By analyzing existing cross correlation between Comerica and Main Street Financial, you can compare the effects of market volatilities on Comerica and Main Street 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 Main Street. Check out your portfolio center. Please also check ongoing floating volatility patterns of Comerica and Main Street.

Diversification Opportunities for Comerica and Main Street

0.84

Correlation Coefficient

Comerica  Main Street

Very poor diversification

The 3 months correlation between Comerica and Main is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Comerica and Main Street Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Financial 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 Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Financial has no effect on the direction of Comerica i.e., Comerica and Main Street go up and down completely randomly.

Pair Corralation between Comerica and Main Street

Considering the 90-day investment horizon Comerica is expected to generate 1.5 times more return on investment than Main Street. However, Comerica is 1.5 times more volatile than Main Street Financial. It trades about 0.23 of its potential returns per unit of risk. Main Street Financial is currently generating about 0.04 per unit of risk. If you would invest  6,239  in Comerica on September 4, 2024 and sell it today you would earn a total of  841.00  from holding Comerica or generate 13.48% return on investment over 90 days.

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

Comerica  vs.  Main Street Financial

Comerica

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Comerica are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady primary indicators, Comerica sustained solid returns over the last few months and may actually be approaching a breakup point.

Main Street Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Main Street may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Comerica and Main Street

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

The idea behind Comerica and Main Street Financial 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.