Correlation Between Cadence Bank and CullenFrost Bankers

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

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

Diversification Opportunities for Cadence Bank and CullenFrost Bankers

0.67

Correlation Coefficient

Cadence Bank  CullenFrost Bankers

Poor diversification

The 3 months correlation between Cadence and CullenFrost is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Cadence Bank and CullenFrost Bankers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CullenFrost Bankers and Cadence Bank 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 Cadence Bank are associated (or correlated) with CullenFrost Bankers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CullenFrost Bankers has no effect on the direction of Cadence Bank i.e., Cadence Bank and CullenFrost Bankers go up and down completely randomly.

Pair Corralation between Cadence Bank and CullenFrost Bankers

Assuming the 90 days trading horizon Cadence Bank is expected to generate 0.97 times more return on investment than CullenFrost Bankers. However, Cadence Bank is 1.03 times less risky than CullenFrost Bankers. It trades about 0.0 of its potential returns per unit of risk. CullenFrost Bankers is currently generating about -0.1 per unit of risk. If you would invest  2,106  in Cadence Bank on August 31, 2024 and sell it today you would lose (2.00) from holding Cadence Bank or give up 0.09% of portfolio value over 90 days.

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

Cadence Bank  vs.  CullenFrost Bankers

Cadence Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cadence Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Cadence Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

CullenFrost Bankers

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CullenFrost Bankers has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CullenFrost Bankers is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cadence Bank and CullenFrost Bankers

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

The idea behind Cadence Bank and CullenFrost Bankers 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.