Correlation Between Fifth Third and Veritex Holdings

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

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

Diversification Opportunities for Fifth Third and Veritex Holdings

0.97

Correlation Coefficient

Fifth Third  Veritex Holdings

Almost no diversification

The 3 months correlation between Fifth and Veritex is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Veritex Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veritex Holdings and Fifth Third 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 Fifth Third Bancorp are associated (or correlated) with Veritex Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veritex Holdings has no effect on the direction of Fifth Third i.e., Fifth Third and Veritex Holdings go up and down completely randomly.

Pair Corralation between Fifth Third and Veritex Holdings

Given the investment horizon of 90 days Fifth Third is expected to generate 2.23 times less return on investment than Veritex Holdings. But when comparing it to its historical volatility, Fifth Third Bancorp is 1.48 times less risky than Veritex Holdings. It trades about 0.09 of its potential returns per unit of risk. Veritex Holdings is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,474  in Veritex Holdings on September 15, 2024 and sell it today you would earn a total of  490.00  from holding Veritex Holdings or generate 19.81% return on investment over 90 days.

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

Fifth Third Bancorp  vs.  Veritex Holdings

Fifth Third Bancorp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fifth Third Bancorp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fifth Third may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Veritex Holdings

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Veritex Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Veritex Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fifth Third and Veritex Holdings

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

The idea behind Fifth Third Bancorp and Veritex Holdings 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.

Check out your portfolio center.

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.