Correlation Between Commerce Bancshares and First Financial

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

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

Diversification Opportunities for Commerce Bancshares and First Financial

0.96

Correlation Coefficient

Commerce Bancshares  First Financial

Almost no diversification

The 3 months correlation between Commerce and First is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and First Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Financial 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 First Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Financial has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and First Financial go up and down completely randomly.

Pair Corralation between Commerce Bancshares and First Financial

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 0.76 times more return on investment than First Financial. However, Commerce Bancshares is 1.31 times less risky than First Financial. It trades about 0.32 of its potential returns per unit of risk. First Financial is currently generating about 0.2 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Commerce Bancshares  vs.  First Financial

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.

First Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, First Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Commerce Bancshares and First Financial

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

The idea behind Commerce Bancshares and First Financial 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.