Correlation Between SM Investments and Bank of Commerce

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

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

Diversification Opportunities for SM Investments and Bank of Commerce

0.81

Correlation Coefficient

SM Investments  Bank of Commerce

Very poor diversification

The 3 months correlation between SM Investments and Bank is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SM Investments Corp and Bank of Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Commerce and SM Investments 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 SM Investments Corp are associated (or correlated) with Bank of Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Commerce has no effect on the direction of SM Investments i.e., SM Investments and Bank of Commerce go up and down completely randomly.

Pair Corralation between SM Investments and Bank of Commerce

Assuming the 90 days trading horizon SM Investments is expected to generate 1.76 times less return on investment than Bank of Commerce. But when comparing it to its historical volatility, SM Investments Corp is 1.53 times less risky than Bank of Commerce. It trades about 0.03 of its potential returns per unit of risk. Bank of Commerce is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  680.00  in Bank of Commerce on October 13, 2024 and sell it today you would earn a total of  40.00  from holding Bank of Commerce or generate 5.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.0%
Values	Daily Returns

SM Investments Corp  vs.  Bank of Commerce

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Bank of Commerce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Commerce has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in February 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with SM Investments and Bank of Commerce

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

The idea behind SM Investments Corp and Bank of Commerce 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.