Correlation Between Community Trust and Commerce Bancshares

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

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

Diversification Opportunities for Community Trust and Commerce Bancshares

0.94

Correlation Coefficient

Community Trust  Commerce Bancshares

Almost no diversification

The 3 months correlation between Community and Commerce is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Community Trust Bancorp and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and Community Trust 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 Community Trust Bancorp are associated (or correlated) with Commerce Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerce Bancshares has no effect on the direction of Community Trust i.e., Community Trust and Commerce Bancshares go up and down completely randomly.

Pair Corralation between Community Trust and Commerce Bancshares

Given the investment horizon of 90 days Community Trust is expected to generate 1.18 times less return on investment than Commerce Bancshares. In addition to that, Community Trust is 1.52 times more volatile than Commerce Bancshares. It trades about 0.18 of its total potential returns per unit of risk. Commerce Bancshares is currently generating about 0.32 per unit of volatility. 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

Community Trust Bancorp  vs.  Commerce Bancshares

Community Trust Bancorp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Community Trust Bancorp are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Community Trust demonstrated solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Community Trust and Commerce Bancshares

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

The idea behind Community Trust Bancorp and Commerce Bancshares 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.