Correlation Between CF Bankshares and Prosperity Bancshares

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Can any of the company-specific risk be diversified away by investing in both CF Bankshares 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 CF Bankshares and Prosperity Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CF Bankshares and Prosperity Bancshares, you can compare the effects of market volatilities on CF Bankshares 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 CF Bankshares with a short position of Prosperity Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of CF Bankshares and Prosperity Bancshares.

Diversification Opportunities for CF Bankshares and Prosperity Bancshares

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between CFBK and Prosperity is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding CF Bankshares and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and CF Bankshares 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 CF Bankshares 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 CF Bankshares i.e., CF Bankshares and Prosperity Bancshares go up and down completely randomly.

Pair Corralation between CF Bankshares and Prosperity Bancshares

Given the investment horizon of 90 days CF Bankshares is expected to generate 1.33 times less return on investment than Prosperity Bancshares. In addition to that, CF Bankshares is 1.18 times more volatile than Prosperity Bancshares. It trades about 0.17 of its total potential returns per unit of risk. Prosperity Bancshares is currently generating about 0.26 per unit of volatility. If you would invest  7,410  in Prosperity Bancshares on August 29, 2024 and sell it today you would earn a total of  1,051  from holding Prosperity Bancshares or generate 14.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

CF Bankshares  vs.  Prosperity Bancshares

 Performance 
       Timeline  
CF Bankshares 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in CF Bankshares are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite weak fundamental drivers, CF Bankshares disclosed solid returns over the last few months and may actually be approaching a breakup point.
Prosperity Bancshares 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Prosperity Bancshares are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Prosperity Bancshares sustained solid returns over the last few months and may actually be approaching a breakup point.

CF Bankshares and Prosperity Bancshares Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with CF Bankshares and Prosperity Bancshares

The main advantage of trading using opposite CF Bankshares and Prosperity Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CF Bankshares 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 CF Bankshares 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.

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