Correlation Between Prosperity Bancshares and HomeStreet

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

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

Diversification Opportunities for Prosperity Bancshares and HomeStreet

-0.59

Correlation Coefficient

Prosperity Bancshares  HomeStreet

Excellent diversification

The 3 months correlation between Prosperity and HomeStreet is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and HomeStreet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HomeStreet 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 HomeStreet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HomeStreet has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and HomeStreet go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and HomeStreet

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 7.4 times less return on investment than HomeStreet. But when comparing it to its historical volatility, Prosperity Bancshares is 1.63 times less risky than HomeStreet. It trades about 0.04 of its potential returns per unit of risk. HomeStreet is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  906.00  in HomeStreet on September 30, 2024 and sell it today you would earn a total of  210.00  from holding HomeStreet or generate 23.18% return on investment over 90 days.

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

Prosperity Bancshares  vs.  HomeStreet

Prosperity Bancshares

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

HomeStreet

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HomeStreet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Prosperity Bancshares and HomeStreet

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

The idea behind Prosperity Bancshares and HomeStreet 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.