Correlation Between Farmers Bank and Truist Financial

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

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

Diversification Opportunities for Farmers Bank and Truist Financial

0.16

Correlation Coefficient

Farmers Bank  Truist Financial

Average diversification

The 3 months correlation between Farmers and Truist is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding The Farmers Bank and Truist Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truist Financial Corp and Farmers 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 The Farmers Bank are associated (or correlated) with Truist Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truist Financial Corp has no effect on the direction of Farmers Bank i.e., Farmers Bank and Truist Financial go up and down completely randomly.

Pair Corralation between Farmers Bank and Truist Financial

Given the investment horizon of 90 days Farmers Bank is expected to generate 16.36 times less return on investment than Truist Financial. But when comparing it to its historical volatility, The Farmers Bank is 1.43 times less risky than Truist Financial. It trades about 0.01 of its potential returns per unit of risk. Truist Financial Corp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,260  in Truist Financial Corp on September 3, 2024 and sell it today you would earn a total of  1,508  from holding Truist Financial Corp or generate 46.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.23%
Values	Daily Returns

The Farmers Bank  vs.  Truist Financial Corp

Farmers Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Farmers Bank are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Farmers Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Truist Financial Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Truist Financial Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Truist Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Farmers Bank and Truist Financial

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

The idea behind The Farmers Bank and Truist Financial Corp 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.