Correlation Between Grand Canyon and Commerce Bancshares

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

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

Diversification Opportunities for Grand Canyon and Commerce Bancshares

0.93

Correlation Coefficient

Grand Canyon  Commerce Bancshares

Almost no diversification

The 3 months correlation between Grand and Commerce is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Grand Canyon Education and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and Grand Canyon 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 Grand Canyon Education 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 Grand Canyon i.e., Grand Canyon and Commerce Bancshares go up and down completely randomly.

Pair Corralation between Grand Canyon and Commerce Bancshares

Assuming the 90 days trading horizon Grand Canyon Education is expected to generate 1.05 times more return on investment than Commerce Bancshares. However, Grand Canyon is 1.05 times more volatile than Commerce Bancshares. It trades about 0.03 of its potential returns per unit of risk. Commerce Bancshares is currently generating about -0.36 per unit of risk. If you would invest  15,600  in Grand Canyon Education on October 5, 2024 and sell it today you would earn a total of  100.00  from holding Grand Canyon Education or generate 0.64% return on investment over 90 days.

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

Grand Canyon Education  vs.  Commerce Bancshares

Grand Canyon Education

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Grand Canyon Education has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, Grand Canyon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Commerce Bancshares

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Commerce Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Commerce Bancshares reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grand Canyon and Commerce Bancshares

The main advantage of trading using opposite Grand Canyon and Commerce Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Grand Canyon 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 Grand Canyon Education 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.