Correlation Between Washington Federal and Prosperity Bancshares

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

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

Diversification Opportunities for Washington Federal and Prosperity Bancshares

0.35

Correlation Coefficient

Washington Federal  Prosperity Bancshares

Weak diversification

The 3 months correlation between Washington and Prosperity is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Washington Federal and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and Washington Federal 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 Washington Federal 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 Washington Federal i.e., Washington Federal and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between Washington Federal and Prosperity Bancshares

Given the investment horizon of 90 days Washington Federal is expected to under-perform the Prosperity Bancshares. In addition to that, Washington Federal is 1.35 times more volatile than Prosperity Bancshares. It trades about -0.11 of its total potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.06 per unit of volatility. If you would invest  7,451  in Prosperity Bancshares on December 30, 2024 and sell it today you would lose (399.00) from holding Prosperity Bancshares or give up 5.35% of portfolio value over 90 days.

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

Washington Federal  vs.  Prosperity Bancshares

Washington Federal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Washington Federal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 somewhat strong fundamental drivers, Prosperity Bancshares is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Washington Federal and Prosperity Bancshares

The main advantage of trading using opposite Washington Federal and Prosperity Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Washington Federal 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 Washington Federal 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.