Correlation Between RFM Corp and Bank of Commerce

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

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

Diversification Opportunities for RFM Corp and Bank of Commerce

-0.65

Correlation Coefficient

RFM Corp  Bank of Commerce

Excellent diversification

The 3 months correlation between RFM and Bank is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding RFM Corp and Bank of Commerce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Commerce and RFM Corp 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 RFM Corp are associated (or correlated) with Bank of Commerce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Commerce has no effect on the direction of RFM Corp i.e., RFM Corp and Bank of Commerce go up and down completely randomly.

Pair Corralation between RFM Corp and Bank of Commerce

Assuming the 90 days trading horizon RFM Corp is expected to generate 0.61 times more return on investment than Bank of Commerce. However, RFM Corp is 1.63 times less risky than Bank of Commerce. It trades about 0.07 of its potential returns per unit of risk. Bank of Commerce is currently generating about -0.2 per unit of risk. If you would invest  368.00  in RFM Corp on September 27, 2024 and sell it today you would earn a total of  17.00  from holding RFM Corp or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.77%
Values	Daily Returns

RFM Corp  vs.  Bank of Commerce

RFM Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RFM Corp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, RFM Corp is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Bank of Commerce

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank of Commerce has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with RFM Corp and Bank of Commerce

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

The idea behind RFM Corp and Bank of Commerce 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.