Correlation Between First Interstate and Prosperity Bancshares

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

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

Diversification Opportunities for First Interstate and Prosperity Bancshares

0.95

Correlation Coefficient

First Interstate  Prosperity Bancshares

Almost no diversification

The 3 months correlation between First and Prosperity is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding First Interstate BancSystem and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and First Interstate 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 First Interstate BancSystem 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 First Interstate i.e., First Interstate and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between First Interstate and Prosperity Bancshares

Given the investment horizon of 90 days First Interstate BancSystem is expected to generate 1.39 times more return on investment than Prosperity Bancshares. However, First Interstate is 1.39 times more volatile than Prosperity Bancshares. It trades about -0.17 of its potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.38 per unit of risk. If you would invest  3,450  in First Interstate BancSystem on October 5, 2024 and sell it today you would lose (203.00) from holding First Interstate BancSystem or give up 5.88% of portfolio value over 90 days.

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

First Interstate BancSystem  vs.  Prosperity Bancshares

First Interstate Ban

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in First Interstate BancSystem are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating fundamental drivers, First Interstate disclosed solid returns over the last few months and may actually be approaching a breakup point.

Prosperity Bancshares

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Prosperity Bancshares may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with First Interstate and Prosperity Bancshares

The main advantage of trading using opposite First Interstate and Prosperity Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Interstate 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 First Interstate BancSystem 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.