Correlation Between Prosperity Bancshares and First Merchants
Can any of the company-specific risk be diversified away by investing in both Prosperity Bancshares and First Merchants 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 Merchants 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 Merchants, you can compare the effects of market volatilities on Prosperity Bancshares and First Merchants 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 Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prosperity Bancshares and First Merchants.
Diversification Opportunities for Prosperity Bancshares and First Merchants
0.28 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Prosperity and First is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants 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 Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and First Merchants go up and down completely randomly.
Pair Corralation between Prosperity Bancshares and First Merchants
Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to under-perform the First Merchants. But the stock apears to be less risky and, when comparing its historical volatility, Prosperity Bancshares is 1.27 times less risky than First Merchants. The stock trades about -0.15 of its potential returns per unit of risk. The First Merchants is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,544 in First Merchants on December 5, 2024 and sell it today you would earn a total of 18.00 from holding First Merchants or generate 0.71% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Prosperity Bancshares vs. First Merchants
Performance |
Timeline |
Prosperity Bancshares |
First Merchants |
Prosperity Bancshares and First Merchants Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Prosperity Bancshares and First Merchants
The main advantage of trading using opposite Prosperity Bancshares and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prosperity Bancshares position performs unexpectedly, First Merchants 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 Merchants will offset losses from the drop in First Merchants' long position.Prosperity Bancshares vs. Heritage Commerce Corp | Prosperity Bancshares vs. Business First Bancshares | Prosperity Bancshares vs. German American Bancorp | Prosperity Bancshares vs. Texas Capital Bancshares |
First Merchants vs. OceanFirst Financial Corp | First Merchants vs. Old National Bancorp | First Merchants vs. Old National Bancorp |
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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.
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