Correlation Between Signature Bank and Provident Financial

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

By analyzing existing cross correlation between Signature Bank and Provident Financial Holdings, you can compare the effects of market volatilities on Signature Bank and Provident Financial 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 Signature Bank with a short position of Provident Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Signature Bank and Provident Financial.

Diversification Opportunities for Signature Bank and Provident Financial

-0.46

Correlation Coefficient

Signature Bank  Provident Financial

Very good diversification

The 3 months correlation between Signature and Provident is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Signature Bank and Provident Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Provident Financial and Signature Bank 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 Signature Bank are associated (or correlated) with Provident Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Provident Financial has no effect on the direction of Signature Bank i.e., Signature Bank and Provident Financial go up and down completely randomly.

Pair Corralation between Signature Bank and Provident Financial

Assuming the 90 days horizon Signature Bank is expected to generate 22.17 times more return on investment than Provident Financial. However, Signature Bank is 22.17 times more volatile than Provident Financial Holdings. It trades about 0.11 of its potential returns per unit of risk. Provident Financial Holdings is currently generating about 0.03 per unit of risk. If you would invest  1,768  in Signature Bank on October 3, 2024 and sell it today you would lose (1,766) from holding Signature Bank or give up 99.9% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	23.26%
Values	Daily Returns

Signature Bank  vs.  Provident Financial Holdings

Signature Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Signature Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Signature Bank is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Provident Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Provident Financial Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Provident Financial may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Signature Bank and Provident Financial

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

The idea behind Signature Bank and Provident Financial Holdings 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.