Correlation Between Fifth Third and Cadence Bank

Can any of the company-specific risk be diversified away by investing in both Fifth Third and Cadence Bank 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 Cadence Bank 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 Cadence Bank, you can compare the effects of market volatilities on Fifth Third and Cadence Bank 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 Cadence Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Cadence Bank.

Diversification Opportunities for Fifth Third and Cadence Bank

0.66

Correlation Coefficient

Fifth Third  Cadence Bank

Poor diversification

The 3 months correlation between Fifth and Cadence is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Cadence Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cadence Bank 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 Cadence Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cadence Bank has no effect on the direction of Fifth Third i.e., Fifth Third and Cadence Bank go up and down completely randomly.

Pair Corralation between Fifth Third and Cadence Bank

Assuming the 90 days horizon Fifth Third is expected to generate 6.91 times less return on investment than Cadence Bank. But when comparing it to its historical volatility, Fifth Third Bancorp is 3.04 times less risky than Cadence Bank. It trades about 0.06 of its potential returns per unit of risk. Cadence Bank is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,956  in Cadence Bank on December 30, 2024 and sell it today you would earn a total of  202.00  from holding Cadence Bank or generate 10.33% return on investment over 90 days.

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

Fifth Third Bancorp  vs.  Cadence Bank

Fifth Third Bancorp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, Fifth Third is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Cadence Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cadence Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Cadence Bank may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Fifth Third and Cadence Bank

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

The idea behind Fifth Third Bancorp and Cadence Bank 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.