Correlation Between Commerce Bancshares and Eagle Bancorp

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

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

Diversification Opportunities for Commerce Bancshares and Eagle Bancorp

0.84

Correlation Coefficient

Commerce Bancshares  Eagle Bancorp

Very poor diversification

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

Pair Corralation between Commerce Bancshares and Eagle Bancorp

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 0.73 times more return on investment than Eagle Bancorp. However, Commerce Bancshares is 1.37 times less risky than Eagle Bancorp. It trades about 0.32 of its potential returns per unit of risk. Eagle Bancorp is currently generating about 0.21 per unit of risk. If you would invest  6,250  in Commerce Bancshares on September 3, 2024 and sell it today you would earn a total of  1,125  from holding Commerce Bancshares or generate 18.0% return on investment over 90 days.

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

Commerce Bancshares  vs.  Eagle Bancorp

Commerce Bancshares

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Bancshares are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Commerce Bancshares demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Eagle Bancorp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Eagle Bancorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commerce Bancshares and Eagle Bancorp

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

The idea behind Commerce Bancshares and Eagle Bancorp 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.