Correlation Between Banc Of and Prosperity Bancshares

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

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

Diversification Opportunities for Banc Of and Prosperity Bancshares

0.09

Correlation Coefficient

Banc Of  Prosperity Bancshares

Significant diversification

The 3 months correlation between Banc and Prosperity is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Banc of California and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and Banc Of 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 Banc of California are associated (or correlated) with Prosperity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosperity Bancshares has no effect on the direction of Banc Of i.e., Banc Of and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between Banc Of and Prosperity Bancshares

Assuming the 90 days trading horizon Banc of California is expected to generate 0.42 times more return on investment than Prosperity Bancshares. However, Banc of California is 2.4 times less risky than Prosperity Bancshares. It trades about 0.11 of its potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.1 per unit of risk. If you would invest  2,433  in Banc of California on December 1, 2024 and sell it today you would earn a total of  84.00  from holding Banc of California or generate 3.45% return on investment over 90 days.

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

Banc of California  vs.  Prosperity Bancshares

Banc of California

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Banc of California are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Banc Of is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Prosperity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prosperity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Banc Of and Prosperity Bancshares

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

The idea behind Banc of California and Prosperity 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.