Correlation Between Community West and Commerce Bancshares

Can any of the company-specific risk be diversified away by investing in both Community West 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 West 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 West Bancshares and Commerce Bancshares, you can compare the effects of market volatilities on Community West 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 West with a short position of Commerce Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Community West and Commerce Bancshares.

Diversification Opportunities for Community West and Commerce Bancshares

0.92

Correlation Coefficient

Community West  Commerce Bancshares

Almost no diversification

The 3 months correlation between Community and Commerce is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Community West Bancshares and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and Community West 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 West Bancshares 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 West i.e., Community West and Commerce Bancshares go up and down completely randomly.

Pair Corralation between Community West and Commerce Bancshares

Given the investment horizon of 90 days Community West Bancshares is expected to under-perform the Commerce Bancshares. In addition to that, Community West is 1.12 times more volatile than Commerce Bancshares. It trades about -0.42 of its total potential returns per unit of risk. Commerce Bancshares is currently generating about -0.45 per unit of volatility. If you would invest  6,992  in Commerce Bancshares on September 23, 2024 and sell it today you would lose (689.00) from holding Commerce Bancshares or give up 9.85% of portfolio value over 90 days.

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

Community West Bancshares  vs.  Commerce Bancshares

Community West Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Community West Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Community West is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Community West and Commerce Bancshares

The main advantage of trading using opposite Community West and Commerce Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Community West 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 West Bancshares 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.

Check out your portfolio center.

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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.