Correlation Between Eagle Bancorp and Prosperity Bancshares

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

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

Diversification Opportunities for Eagle Bancorp and Prosperity Bancshares

-0.41

Correlation Coefficient

Eagle Bancorp  Prosperity Bancshares

Very good diversification

The 3 months correlation between Eagle and Prosperity is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Bancorp Montana and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and Eagle Bancorp 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 Eagle Bancorp Montana 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 Eagle Bancorp i.e., Eagle Bancorp and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between Eagle Bancorp and Prosperity Bancshares

Given the investment horizon of 90 days Eagle Bancorp Montana is expected to generate 1.32 times more return on investment than Prosperity Bancshares. However, Eagle Bancorp is 1.32 times more volatile than Prosperity Bancshares. It trades about 0.13 of its potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.05 per unit of risk. If you would invest  1,484  in Eagle Bancorp Montana on December 29, 2024 and sell it today you would earn a total of  203.00  from holding Eagle Bancorp Montana or generate 13.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Eagle Bancorp Montana  vs.  Prosperity Bancshares

Eagle Bancorp Montana

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile primary indicators, Eagle Bancorp unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 somewhat strong fundamental drivers, Prosperity Bancshares is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Eagle Bancorp and Prosperity Bancshares

The main advantage of trading using opposite Eagle Bancorp and Prosperity Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle Bancorp 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 Eagle Bancorp Montana 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.