Correlation Between Eastern Bankshares and South Plains

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

By analyzing existing cross correlation between Eastern Bankshares and South Plains Financial, you can compare the effects of market volatilities on Eastern Bankshares and South Plains 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 Eastern Bankshares with a short position of South Plains. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eastern Bankshares and South Plains.

Diversification Opportunities for Eastern Bankshares and South Plains

0.81

Correlation Coefficient

Eastern Bankshares  South Plains

Very poor diversification

The 3 months correlation between Eastern and South is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Eastern Bankshares and South Plains Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Plains Financial and Eastern Bankshares 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 Eastern Bankshares are associated (or correlated) with South Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Plains Financial has no effect on the direction of Eastern Bankshares i.e., Eastern Bankshares and South Plains go up and down completely randomly.

Pair Corralation between Eastern Bankshares and South Plains

Considering the 90-day investment horizon Eastern Bankshares is expected to generate 1.07 times more return on investment than South Plains. However, Eastern Bankshares is 1.07 times more volatile than South Plains Financial. It trades about -0.01 of its potential returns per unit of risk. South Plains Financial is currently generating about -0.03 per unit of risk. If you would invest  1,713  in Eastern Bankshares on December 28, 2024 and sell it today you would lose (38.00) from holding Eastern Bankshares or give up 2.22% of portfolio value over 90 days.

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

Eastern Bankshares  vs.  South Plains Financial

Eastern Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Eastern Bankshares is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

South Plains Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days South Plains Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, South Plains is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Eastern Bankshares and South Plains

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

The idea behind Eastern Bankshares and South Plains Financial 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.