Correlation Between First Bancorp and Commerce Bancshares

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

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

Diversification Opportunities for First Bancorp and Commerce Bancshares

0.94

Correlation Coefficient

First Bancorp  Commerce Bancshares

Almost no diversification

The 3 months correlation between First and Commerce is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding First Bancorp and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and First Bancorp 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 First 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 First Bancorp i.e., First Bancorp and Commerce Bancshares go up and down completely randomly.

Pair Corralation between First Bancorp and Commerce Bancshares

Given the investment horizon of 90 days First Bancorp is expected to generate 1.32 times less return on investment than Commerce Bancshares. In addition to that, First Bancorp is 1.25 times more volatile than Commerce Bancshares. It trades about 0.06 of its total potential returns per unit of risk. Commerce Bancshares is currently generating about 0.09 per unit of volatility. If you would invest  6,046  in Commerce Bancshares on September 19, 2024 and sell it today you would earn a total of  625.00  from holding Commerce Bancshares or generate 10.34% return on investment over 90 days.

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

First Bancorp  vs.  Commerce Bancshares

First Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in First Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, First Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Commerce Bancshares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Commerce Bancshares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Commerce Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with First Bancorp and Commerce Bancshares

The main advantage of trading using opposite First Bancorp and Commerce Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Bancorp 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 First 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.