Correlation Between Prosperity Bancshares and BBVA Banco

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

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

Diversification Opportunities for Prosperity Bancshares and BBVA Banco

0.58

Correlation Coefficient

Prosperity Bancshares  BBVA Banco

Very weak diversification

The 3 months correlation between Prosperity and BBVA is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and BBVA Banco Frances in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBVA Banco Frances and Prosperity Bancshares 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 Prosperity Bancshares are associated (or correlated) with BBVA Banco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBVA Banco Frances has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and BBVA Banco go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and BBVA Banco

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to under-perform the BBVA Banco. But the stock apears to be less risky and, when comparing its historical volatility, Prosperity Bancshares is 3.31 times less risky than BBVA Banco. The stock trades about -0.07 of its potential returns per unit of risk. The BBVA Banco Frances is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,905  in BBVA Banco Frances on December 28, 2024 and sell it today you would lose (32.00) from holding BBVA Banco Frances or give up 1.68% of portfolio value over 90 days.

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

Prosperity Bancshares  vs.  BBVA Banco Frances

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.

BBVA Banco Frances

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BBVA Banco Frances are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, BBVA Banco is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Prosperity Bancshares and BBVA Banco

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

The idea behind Prosperity Bancshares and BBVA Banco Frances 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.