Correlation Between Truist Financial and Eastern Bankshares

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

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

Diversification Opportunities for Truist Financial and Eastern Bankshares

0.38

Correlation Coefficient

Truist Financial  Eastern Bankshares

Weak diversification

The 3 months correlation between Truist and Eastern is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares 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 Eastern Bankshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eastern Bankshares has no effect on the direction of Truist Financial i.e., Truist Financial and Eastern Bankshares go up and down completely randomly.

Pair Corralation between Truist Financial and Eastern Bankshares

Assuming the 90 days trading horizon Truist Financial is expected to generate 0.59 times more return on investment than Eastern Bankshares. However, Truist Financial is 1.69 times less risky than Eastern Bankshares. It trades about 0.07 of its potential returns per unit of risk. Eastern Bankshares is currently generating about -0.04 per unit of risk. If you would invest  1,884  in Truist Financial on December 29, 2024 and sell it today you would earn a total of  73.00  from holding Truist Financial or generate 3.87% return on investment over 90 days.

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

Truist Financial  vs.  Eastern Bankshares

Truist Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Truist Financial are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Truist Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Eastern Bankshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eastern Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, Eastern Bankshares is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Truist Financial and Eastern Bankshares

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

The idea behind Truist Financial and Eastern Bankshares 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.