Correlation Between Prosperity Bancshares and Evans Bancorp

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

Diversification Opportunities for Prosperity Bancshares and Evans Bancorp

0.86

Correlation Coefficient

Prosperity Bancshares  Evans Bancorp

Very poor diversification

The 3 months correlation between Prosperity and Evans is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Evans Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Evans 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 Evans Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Evans Bancorp has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Evans Bancorp go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Evans Bancorp

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 0.81 times more return on investment than Evans Bancorp. However, Prosperity Bancshares is 1.24 times less risky than Evans Bancorp. It trades about -0.06 of its potential returns per unit of risk. Evans Bancorp is currently generating about -0.09 per unit of risk. If you would invest  7,451  in Prosperity Bancshares on December 30, 2024 and sell it today you would lose (399.00) from holding Prosperity Bancshares or give up 5.35% of portfolio value over 90 days.

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

Prosperity Bancshares  vs.  Evans 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 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.

Evans Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Evans Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Prosperity Bancshares and Evans Bancorp

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

The idea behind Prosperity Bancshares and Evans 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.