Correlation Between Commercial National and Eastern Michigan

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

By analyzing existing cross correlation between Commercial National Financial and Eastern Michigan Financial, you can compare the effects of market volatilities on Commercial National and Eastern Michigan 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 Commercial National with a short position of Eastern Michigan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commercial National and Eastern Michigan.

Diversification Opportunities for Commercial National and Eastern Michigan

0.83

Correlation Coefficient

Commercial National  Eastern Michigan

Very poor diversification

The 3 months correlation between Commercial and Eastern is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Commercial National Financial and Eastern Michigan Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Michigan Fin and Commercial National 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 Commercial National Financial are associated (or correlated) with Eastern Michigan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Michigan Fin has no effect on the direction of Commercial National i.e., Commercial National and Eastern Michigan go up and down completely randomly.

Pair Corralation between Commercial National and Eastern Michigan

Given the investment horizon of 90 days Commercial National is expected to generate 2.06 times less return on investment than Eastern Michigan. But when comparing it to its historical volatility, Commercial National Financial is 1.03 times less risky than Eastern Michigan. It trades about 0.1 of its potential returns per unit of risk. Eastern Michigan Financial is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,050  in Eastern Michigan Financial on August 31, 2024 and sell it today you would earn a total of  491.00  from holding Eastern Michigan Financial or generate 16.1% return on investment over 90 days.

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

Commercial National Financial  vs.  Eastern Michigan Financial

Commercial National

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial National Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Commercial National may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Eastern Michigan Fin

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Eastern Michigan Financial are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile forward indicators, Eastern Michigan displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commercial National and Eastern Michigan

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

The idea behind Commercial National Financial and Eastern Michigan 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.

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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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.