Correlation Between Prosperity Bancshares and Eagle Bancorp

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

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

Diversification Opportunities for Prosperity Bancshares and Eagle Bancorp

0.74

Correlation Coefficient

Prosperity Bancshares  Eagle Bancorp

Poor diversification

The 3 months correlation between Prosperity and Eagle is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Eagle Bancorp Montana in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Bancorp Montana and Prosperity Bancshares 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 Prosperity Bancshares are associated (or correlated) with Eagle Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Bancorp Montana has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Eagle Bancorp go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Eagle Bancorp

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 1.04 times less return on investment than Eagle Bancorp. In addition to that, Prosperity Bancshares is 1.55 times more volatile than Eagle Bancorp Montana. It trades about 0.14 of its total potential returns per unit of risk. Eagle Bancorp Montana is currently generating about 0.23 per unit of volatility. If you would invest  1,486  in Eagle Bancorp Montana on September 2, 2024 and sell it today you would earn a total of  254.00  from holding Eagle Bancorp Montana or generate 17.09% return on investment over 90 days.

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

Prosperity Bancshares  vs.  Eagle Bancorp Montana

Prosperity Bancshares

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Prosperity Bancshares sustained solid returns over the last few months and may actually be approaching a breakup point.

Eagle Bancorp Montana

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eagle Bancorp Montana are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent primary indicators, Eagle Bancorp unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Prosperity Bancshares and Eagle Bancorp

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

The idea behind Prosperity Bancshares and Eagle Bancorp Montana 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.