Correlation Between Comerica and Traditions Bank

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

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

Diversification Opportunities for Comerica and Traditions Bank

0.83

Correlation Coefficient

Comerica  Traditions Bank

Very poor diversification

The 3 months correlation between Comerica and Traditions is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Comerica and Traditions Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Traditions 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 Traditions Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Traditions Bank has no effect on the direction of Comerica i.e., Comerica and Traditions Bank go up and down completely randomly.

Pair Corralation between Comerica and Traditions Bank

Considering the 90-day investment horizon Comerica is expected to generate 1.81 times less return on investment than Traditions Bank. But when comparing it to its historical volatility, Comerica is 1.88 times less risky than Traditions Bank. It trades about 0.09 of its potential returns per unit of risk. Traditions Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,774  in Traditions Bank on September 4, 2024 and sell it today you would earn a total of  1,725  from holding Traditions Bank or generate 97.24% return on investment over 90 days.

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

Comerica  vs.  Traditions Bank

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.

Traditions Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Traditions Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile fundamental drivers, Traditions Bank disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Comerica and Traditions Bank

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

The idea behind Comerica and Traditions 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.