Correlation Between Prosperity Bancshares and Magyar Bancorp

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

Diversification Opportunities for Prosperity Bancshares and Magyar Bancorp

0.82

Correlation Coefficient

Prosperity Bancshares  Magyar Bancorp

Very poor diversification

The 3 months correlation between Prosperity and Magyar is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Magyar Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magyar 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 Magyar Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magyar Bancorp has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Magyar Bancorp go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Magyar Bancorp

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 1.09 times less return on investment than Magyar Bancorp. In addition to that, Prosperity Bancshares is 2.33 times more volatile than Magyar Bancorp. It trades about 0.29 of its total potential returns per unit of risk. Magyar Bancorp is currently generating about 0.73 per unit of volatility. If you would invest  1,217  in Magyar Bancorp on September 2, 2024 and sell it today you would earn a total of  201.00  from holding Magyar Bancorp or generate 16.52% return on investment over 90 days.

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

Prosperity Bancshares  vs.  Magyar Bancorp

Prosperity Bancshares

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Prosperity Bancshares sustained solid returns over the last few months and may actually be approaching a breakup point.

Magyar Bancorp

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Magyar Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Magyar Bancorp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prosperity Bancshares and Magyar Bancorp

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

The idea behind Prosperity Bancshares and Magyar 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.