Correlation Between Prosperity Bancshares and Wintrust Financial

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

By analyzing existing cross correlation between Prosperity Bancshares and Wintrust Financial Corp, you can compare the effects of market volatilities on Prosperity Bancshares and Wintrust Financial 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 Wintrust Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prosperity Bancshares and Wintrust Financial.

Diversification Opportunities for Prosperity Bancshares and Wintrust Financial

0.73

Correlation Coefficient

Prosperity Bancshares  Wintrust Financial

Poor diversification

The 3 months correlation between Prosperity and Wintrust is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Prosperity Bancshares and Wintrust Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wintrust Financial Corp 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 Wintrust Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wintrust Financial Corp has no effect on the direction of Prosperity Bancshares i.e., Prosperity Bancshares and Wintrust Financial go up and down completely randomly.

Pair Corralation between Prosperity Bancshares and Wintrust Financial

Allowing for the 90-day total investment horizon Prosperity Bancshares is expected to generate 6.17 times more return on investment than Wintrust Financial. However, Prosperity Bancshares is 6.17 times more volatile than Wintrust Financial Corp. It trades about 0.1 of its potential returns per unit of risk. Wintrust Financial Corp is currently generating about 0.09 per unit of risk. If you would invest  7,242  in Prosperity Bancshares on September 17, 2024 and sell it today you would earn a total of  775.00  from holding Prosperity Bancshares or generate 10.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Prosperity Bancshares  vs.  Wintrust Financial Corp

Prosperity Bancshares

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental drivers, Prosperity Bancshares may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wintrust Financial Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wintrust Financial Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, Wintrust Financial is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prosperity Bancshares and Wintrust Financial

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

The idea behind Prosperity Bancshares and Wintrust Financial Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.