Correlation Between Visa and Commerce Bancshares

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

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

Diversification Opportunities for Visa and Commerce Bancshares

0.97

Correlation Coefficient

Visa  Commerce Bancshares

Almost no diversification

The 3 months correlation between Visa and Commerce is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Commerce Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerce Bancshares and Visa 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 Visa Class A 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 Visa i.e., Visa and Commerce Bancshares go up and down completely randomly.

Pair Corralation between Visa and Commerce Bancshares

Taking into account the 90-day investment horizon Visa is expected to generate 1.88 times less return on investment than Commerce Bancshares. But when comparing it to its historical volatility, Visa Class A is 2.5 times less risky than Commerce Bancshares. It trades about 0.24 of its potential returns per unit of risk. Commerce Bancshares is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  5,311  in Commerce Bancshares on September 20, 2024 and sell it today you would earn a total of  1,139  from holding Commerce Bancshares or generate 21.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	97.67%
Values	Daily Returns

Visa Class A  vs.  Commerce Bancshares

Visa Class A

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent basic indicators, Visa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 nearly unsteady basic indicators, Commerce Bancshares reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Visa and Commerce Bancshares

The main advantage of trading using opposite Visa and Commerce Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Visa 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 Visa Class A 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.

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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..