Correlation Between Truist Financial and South Plains

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

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

Diversification Opportunities for Truist Financial and South Plains

-0.6

Correlation Coefficient

Truist Financial  South Plains

Excellent diversification

The 3 months correlation between Truist and South is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial and South Plains Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Plains Financial and Truist Financial 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 Truist Financial are associated (or correlated) with South Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Plains Financial has no effect on the direction of Truist Financial i.e., Truist Financial and South Plains go up and down completely randomly.

Pair Corralation between Truist Financial and South Plains

Assuming the 90 days trading horizon Truist Financial is expected to under-perform the South Plains. But the preferred stock apears to be less risky and, when comparing its historical volatility, Truist Financial is 2.97 times less risky than South Plains. The preferred stock trades about -0.05 of its potential returns per unit of risk. The South Plains Financial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,388  in South Plains Financial on September 4, 2024 and sell it today you would earn a total of  512.00  from holding South Plains Financial or generate 15.11% return on investment over 90 days.

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

Truist Financial  vs.  South Plains Financial

Truist Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Truist Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Truist Financial is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

South Plains Financial

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Plains Financial are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, South Plains demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Truist Financial and South Plains

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

The idea behind Truist Financial and South Plains Financial 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.