Correlation Between Prosperity Bancshares and First Horizon

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

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

Diversification Opportunities for Prosperity Bancshares and First Horizon

-0.15

Correlation Coefficient

Prosperity Bancshares  First Horizon

Good diversification

The 3 months correlation between Prosperity and First is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and First Horizon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Horizon 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 First Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Horizon has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and First Horizon go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and First Horizon

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to under-perform the First Horizon. In addition to that, Prosperity Bancshares is 1.69 times more volatile than First Horizon. It trades about -0.08 of its total potential returns per unit of risk. First Horizon is currently generating about 0.12 per unit of volatility. If you would invest  2,370  in First Horizon on December 21, 2024 and sell it today you would earn a total of  121.00  from holding First Horizon or generate 5.11% return on investment over 90 days.

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

Prosperity Bancshares  vs.  First Horizon

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.

First Horizon

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Horizon are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, First Horizon is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Prosperity Bancshares and First Horizon

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

The idea behind Prosperity Bancshares and First Horizon 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.