Correlation Between Virginia National and Prosperity Bancshares

Can any of the company-specific risk be diversified away by investing in both Virginia National and Prosperity Bancshares 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 Virginia National and Prosperity Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Virginia National Bankshares and Prosperity Bancshares, you can compare the effects of market volatilities on Virginia National and Prosperity Bancshares 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 Virginia National with a short position of Prosperity Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Virginia National and Prosperity Bancshares.

Diversification Opportunities for Virginia National and Prosperity Bancshares

0.65

Correlation Coefficient

Virginia National  Prosperity Bancshares

Poor diversification

The 3 months correlation between Virginia and Prosperity is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Virginia National Bankshares and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and Virginia National 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 Virginia National Bankshares are associated (or correlated) with Prosperity Bancshares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prosperity Bancshares has no effect on the direction of Virginia National i.e., Virginia National and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between Virginia National and Prosperity Bancshares

Given the investment horizon of 90 days Virginia National Bankshares is expected to under-perform the Prosperity Bancshares. In addition to that, Virginia National is 1.58 times more volatile than Prosperity Bancshares. It trades about -0.1 of its total potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.11 per unit of volatility. If you would invest  8,313  in Prosperity Bancshares on November 28, 2024 and sell it today you would lose (657.00) from holding Prosperity Bancshares or give up 7.9% of portfolio value over 90 days.

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

Virginia National Bankshares  vs.  Prosperity Bancshares

Virginia National

Risk-Adjusted Performance

Very Weak

Over the last 90 days Virginia National Bankshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Prosperity Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prosperity Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Virginia National and Prosperity Bancshares

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

The idea behind Virginia National Bankshares and Prosperity Bancshares 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.