Correlation Between Commerce Bancshares and Virginia National

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

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

Diversification Opportunities for Commerce Bancshares and Virginia National

0.6

Correlation Coefficient

Commerce Bancshares  Virginia National

Poor diversification

The 3 months correlation between Commerce and Virginia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and Virginia National Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virginia National 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 Virginia National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virginia National has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and Virginia National go up and down completely randomly.

Pair Corralation between Commerce Bancshares and Virginia National

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 1.65 times less return on investment than Virginia National. But when comparing it to its historical volatility, Commerce Bancshares is 1.36 times less risky than Virginia National. It trades about 0.02 of its potential returns per unit of risk. Virginia National Bankshares is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,324  in Virginia National Bankshares on September 3, 2024 and sell it today you would earn a total of  758.00  from holding Virginia National Bankshares or generate 22.8% return on investment over 90 days.

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

Commerce Bancshares  vs.  Virginia National Bankshares

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.

Virginia National

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Virginia National Bankshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent fundamental drivers, Virginia National is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Commerce Bancshares and Virginia National

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

The idea behind Commerce Bancshares and Virginia National Bankshares 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.