Correlation Between Veritex Holdings and Washington Trust

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

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

Diversification Opportunities for Veritex Holdings and Washington Trust

0.87

Correlation Coefficient

Veritex Holdings  Washington Trust

Very poor diversification

The 3 months correlation between Veritex and Washington is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Veritex Holdings 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 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 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 Veritex Holdings i.e., Veritex Holdings and Washington Trust go up and down completely randomly.

Pair Corralation between Veritex Holdings and Washington Trust

Given the investment horizon of 90 days Veritex Holdings is expected to under-perform the Washington Trust. But the stock apears to be less risky and, when comparing its historical volatility, Veritex Holdings is 1.04 times less risky than Washington Trust. The stock trades about -0.11 of its potential returns per unit of risk. The Washington Trust Bancorp is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  3,623  in Washington Trust Bancorp on November 30, 2024 and sell it today you would lose (411.00) from holding Washington Trust Bancorp or give up 11.34% of portfolio value over 90 days.

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

Veritex Holdings  vs.  Washington Trust Bancorp

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 unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Washington Trust Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Washington Trust Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Veritex Holdings and Washington Trust

The main advantage of trading using opposite Veritex Holdings and Washington Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Veritex Holdings 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 Veritex Holdings 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.