Correlation Between Prosperity Bancshares and Sandy Spring

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

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

Diversification Opportunities for Prosperity Bancshares and Sandy Spring

0.98

Correlation Coefficient

Prosperity Bancshares  Sandy Spring

Almost no diversification

The 3 months correlation between Prosperity and Sandy is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Sandy Spring Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandy Spring 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 Sandy Spring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandy Spring Bancorp has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Sandy Spring go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Sandy Spring

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 1.24 times less return on investment than Sandy Spring. But when comparing it to its historical volatility, Prosperity Bancshares is 1.39 times less risky than Sandy Spring. It trades about 0.02 of its potential returns per unit of risk. Sandy Spring Bancorp is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,135  in Sandy Spring Bancorp on September 24, 2024 and sell it today you would earn a total of  272.50  from holding Sandy Spring Bancorp or generate 8.69% return on investment over 90 days.

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

Prosperity Bancshares  vs.  Sandy Spring Bancorp

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 fragile fundamental drivers, Prosperity Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Sandy Spring Bancorp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sandy Spring Bancorp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Sandy Spring may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Prosperity Bancshares and Sandy Spring

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

The idea behind Prosperity Bancshares and Sandy Spring 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.