Correlation Between Fifth Third and Red River

Can any of the company-specific risk be diversified away by investing in both Fifth Third and Red River 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 Fifth Third and Red River into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Fifth Third and Red River

0.47

Correlation Coefficient

Fifth Third  Red River

Very weak diversification

The 3 months correlation between Fifth and Red is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Red River Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red River Bancshares and Fifth Third 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 Fifth Third Bancorp are associated (or correlated) with Red River. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red River Bancshares has no effect on the direction of Fifth Third i.e., Fifth Third and Red River go up and down completely randomly.

Pair Corralation between Fifth Third and Red River

Given the investment horizon of 90 days Fifth Third Bancorp is expected to generate 0.88 times more return on investment than Red River. However, Fifth Third Bancorp is 1.13 times less risky than Red River. It trades about -0.08 of its potential returns per unit of risk. Red River Bancshares is currently generating about -0.08 per unit of risk. If you would invest  4,267  in Fifth Third Bancorp on December 24, 2024 and sell it today you would lose (319.00) from holding Fifth Third Bancorp or give up 7.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Fifth Third Bancorp  vs.  Red River Bancshares

Fifth Third Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fifth Third Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Red River Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Red River Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Fifth Third and Red River

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

The idea behind Fifth Third Bancorp and Red River 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.