Correlation Between Veritex Holdings and Eastern Bankshares

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

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

Diversification Opportunities for Veritex Holdings and Eastern Bankshares

0.72

Correlation Coefficient

Veritex Holdings  Eastern Bankshares

Poor diversification

The 3 months correlation between Veritex and Eastern is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Veritex Holdings and Eastern Bankshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eastern Bankshares and Veritex Holdings 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 Veritex Holdings 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 Veritex Holdings i.e., Veritex Holdings and Eastern Bankshares go up and down completely randomly.

Pair Corralation between Veritex Holdings and Eastern Bankshares

Given the investment horizon of 90 days Veritex Holdings is expected to under-perform the Eastern Bankshares. In addition to that, Veritex Holdings is 1.02 times more volatile than Eastern Bankshares. It trades about -0.06 of its total potential returns per unit of risk. Eastern Bankshares is currently generating about -0.04 per unit of volatility. If you would invest  1,713  in Eastern Bankshares on December 29, 2024 and sell it today you would lose (81.00) from holding Eastern Bankshares or give up 4.73% of portfolio value over 90 days.

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

Veritex Holdings  vs.  Eastern Bankshares

Veritex Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Veritex Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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 Veritex Holdings and Eastern Bankshares

The main advantage of trading using opposite Veritex Holdings and Eastern Bankshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Veritex Holdings 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 Veritex Holdings 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.