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 Corp 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

0.86

Correlation Coefficient

Truist Financial  Eastern Bankshares

Very poor diversification

The 3 months correlation between Truist and Eastern is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Truist Financial Corp 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 Corp 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

Considering the 90-day investment horizon Truist Financial Corp is expected to under-perform the Eastern Bankshares. But the stock apears to be less risky and, when comparing its historical volatility, Truist Financial Corp is 1.2 times less risky than Eastern Bankshares. The stock trades about -0.07 of its potential returns per unit of risk. The Eastern Bankshares is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  1,807  in Eastern Bankshares on December 4, 2024 and sell it today you would lose (34.00) from holding Eastern Bankshares or give up 1.88% of portfolio value over 90 days.

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

Truist Financial Corp  vs.  Eastern Bankshares

Truist Financial Corp

Risk-Adjusted Performance

Very Weak

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

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 Corp 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.