Correlation Between Commercial National and Farmers Bank

Can any of the company-specific risk be diversified away by investing in both Commercial National and Farmers Bank 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 Farmers Bank 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 The Farmers Bank, you can compare the effects of market volatilities on Commercial National and Farmers Bank 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 Farmers Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commercial National and Farmers Bank.

Diversification Opportunities for Commercial National and Farmers Bank

0.46

Correlation Coefficient

Commercial National  Farmers Bank

Very weak diversification

The 3 months correlation between Commercial and Farmers is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Commercial National Financial and The Farmers Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmers Bank 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 Farmers Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmers Bank has no effect on the direction of Commercial National i.e., Commercial National and Farmers Bank go up and down completely randomly.

Pair Corralation between Commercial National and Farmers Bank

Given the investment horizon of 90 days Commercial National Financial is expected to generate 1.4 times more return on investment than Farmers Bank. However, Commercial National is 1.4 times more volatile than The Farmers Bank. It trades about 0.1 of its potential returns per unit of risk. The Farmers Bank is currently generating about 0.02 per unit of risk. If you would invest  909.00  in Commercial National Financial on September 2, 2024 and sell it today you would earn a total of  66.00  from holding Commercial National Financial or generate 7.26% return on investment over 90 days.

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

Commercial National Financial  vs.  The Farmers Bank

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 unfluctuating technical and fundamental indicators, Commercial National may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Farmers Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Farmers Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Farmers Bank is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Commercial National and Farmers Bank

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

The idea behind Commercial National Financial and The Farmers Bank 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.