Correlation Between Truist Financial and Washington Trust

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

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

Diversification Opportunities for Truist Financial and Washington Trust

-0.59

Correlation Coefficient

Truist Financial  Washington Trust

Excellent diversification

The 3 months correlation between Truist and Washington is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial and Washington Trust Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Trust Bancorp 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 Washington Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Trust Bancorp has no effect on the direction of Truist Financial i.e., Truist Financial and Washington Trust go up and down completely randomly.

Pair Corralation between Truist Financial and Washington Trust

Assuming the 90 days trading horizon Truist Financial is expected to generate 22.39 times less return on investment than Washington Trust. But when comparing it to its historical volatility, Truist Financial is 2.91 times less risky than Washington Trust. It trades about 0.01 of its potential returns per unit of risk. Washington Trust Bancorp is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,197  in Washington Trust Bancorp on September 1, 2024 and sell it today you would earn a total of  517.00  from holding Washington Trust Bancorp or generate 16.17% return on investment over 90 days.

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

Truist Financial  vs.  Washington Trust Bancorp

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. 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.

Washington Trust Bancorp

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Truist Financial and Washington Trust

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

The idea behind Truist Financial and Washington Trust 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.