Correlation Between Prosperity Bancshares and Customers Bancorp

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

Diversification Opportunities for Prosperity Bancshares and Customers Bancorp

0.74

Correlation Coefficient

Prosperity Bancshares  Customers Bancorp

Poor diversification

The 3 months correlation between Prosperity and Customers is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Customers Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Customers 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 Customers Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Customers Bancorp has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Customers Bancorp go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Customers Bancorp

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to under-perform the Customers Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Prosperity Bancshares is 2.18 times less risky than Customers Bancorp. The stock trades about -0.11 of its potential returns per unit of risk. The Customers Bancorp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,492  in Customers Bancorp on December 3, 2024 and sell it today you would lose (227.00) from holding Customers Bancorp or give up 4.13% of portfolio value over 90 days.

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

Prosperity Bancshares  vs.  Customers Bancorp

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 latest fragile performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Customers Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Customers Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Customers Bancorp is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Prosperity Bancshares and Customers Bancorp

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

The idea behind Prosperity Bancshares and Customers 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.