Correlation Between Prosperity Bancshares and ConnectOne Bancorp

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

By analyzing existing cross correlation between Prosperity Bancshares and ConnectOne Bancorp, you can compare the effects of market volatilities on Prosperity Bancshares and ConnectOne Bancorp 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 ConnectOne Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prosperity Bancshares and ConnectOne Bancorp.

Diversification Opportunities for Prosperity Bancshares and ConnectOne Bancorp

0.84

Correlation Coefficient

Prosperity Bancshares  ConnectOne Bancorp

Very poor diversification

The 3 months correlation between Prosperity and ConnectOne is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and ConnectOne Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ConnectOne Bancorp 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 ConnectOne Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ConnectOne Bancorp has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and ConnectOne Bancorp go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and ConnectOne Bancorp

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 1.68 times more return on investment than ConnectOne Bancorp. However, Prosperity Bancshares is 1.68 times more volatile than ConnectOne Bancorp. It trades about 0.12 of its potential returns per unit of risk. ConnectOne Bancorp is currently generating about 0.14 per unit of risk. If you would invest  7,252  in Prosperity Bancshares on September 13, 2024 and sell it today you would earn a total of  939.00  from holding Prosperity Bancshares or generate 12.95% return on investment over 90 days.

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

Prosperity Bancshares  vs.  ConnectOne Bancorp

Prosperity Bancshares

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Prosperity Bancshares sustained solid returns over the last few months and may actually be approaching a breakup point.

ConnectOne Bancorp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ConnectOne Bancorp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, ConnectOne Bancorp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prosperity Bancshares and ConnectOne Bancorp

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

The idea behind Prosperity Bancshares and ConnectOne Bancorp 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.