Correlation Between Commerce Bancshares and Macatawa Bank

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

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

Diversification Opportunities for Commerce Bancshares and Macatawa Bank

0.89

Correlation Coefficient

Commerce Bancshares  Macatawa Bank

Very poor diversification

The 3 months correlation between Commerce and Macatawa is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Commerce Bancshares and Macatawa Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Macatawa Bank and Commerce Bancshares 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 Commerce Bancshares are associated (or correlated) with Macatawa Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Macatawa Bank has no effect on the direction of Commerce Bancshares i.e., Commerce Bancshares and Macatawa Bank go up and down completely randomly.

Pair Corralation between Commerce Bancshares and Macatawa Bank

Given the investment horizon of 90 days Commerce Bancshares is expected to generate 0.99 times more return on investment than Macatawa Bank. However, Commerce Bancshares is 1.01 times less risky than Macatawa Bank. It trades about 0.03 of its potential returns per unit of risk. Macatawa Bank is currently generating about -0.03 per unit of risk. If you would invest  5,479  in Commerce Bancshares on February 28, 2024 and sell it today you would earn a total of  27.00  from holding Commerce Bancshares or generate 0.49% return on investment over 90 days.

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

Commerce Bancshares  vs.  Macatawa Bank

Commerce Bancshares

Risk-Adjusted Performance

7 of 100

Modest

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 June 2024.

Macatawa Bank

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Macatawa Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, Macatawa Bank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commerce Bancshares and Macatawa Bank

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

The idea behind Commerce Bancshares and Macatawa 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.