Correlation Between Prosperity Bancshares and CIT Group

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

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

Diversification Opportunities for Prosperity Bancshares and CIT Group

0.58

Correlation Coefficient

Prosperity Bancshares  CIT Group

Very weak diversification

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

Pair Corralation between Prosperity Bancshares and CIT Group

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to under-perform the CIT Group. In addition to that, Prosperity Bancshares is 1.49 times more volatile than CIT Group Preferred. It trades about -0.1 of its total potential returns per unit of risk. CIT Group Preferred is currently generating about -0.01 per unit of volatility. If you would invest  2,308  in CIT Group Preferred on December 2, 2024 and sell it today you would lose (21.00) from holding CIT Group Preferred or give up 0.91% 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.  CIT Group Preferred

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.

CIT Group Preferred

Risk-Adjusted Performance

Very Weak

Over the last 90 days CIT Group Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, CIT Group is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prosperity Bancshares and CIT Group

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

The idea behind Prosperity Bancshares and CIT Group Preferred 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.

Check out your portfolio center.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.