Correlation Between Fifth Third and Financial Institutions
Can any of the company-specific risk be diversified away by investing in both Fifth Third and Financial Institutions 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 Financial Institutions 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 Financial Institutions, you can compare the effects of market volatilities on Fifth Third and Financial Institutions 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 Financial Institutions. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Financial Institutions.
Diversification Opportunities for Fifth Third and Financial Institutions
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fifth and Financial is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Financial Institutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Institutions 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 Financial Institutions. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Institutions has no effect on the direction of Fifth Third i.e., Fifth Third and Financial Institutions go up and down completely randomly.
Pair Corralation between Fifth Third and Financial Institutions
Given the investment horizon of 90 days Fifth Third is expected to generate 1.59 times less return on investment than Financial Institutions. But when comparing it to its historical volatility, Fifth Third Bancorp is 1.64 times less risky than Financial Institutions. It trades about 0.2 of its potential returns per unit of risk. Financial Institutions is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 2,454 in Financial Institutions on August 27, 2024 and sell it today you would earn a total of 336.00 from holding Financial Institutions or generate 13.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fifth Third Bancorp vs. Financial Institutions
Performance |
| Timeline |
| Fifth Third Bancorp |
| Financial Institutions |
Fifth Third and Financial Institutions Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fifth Third and Financial Institutions
The main advantage of trading using opposite Fifth Third and Financial Institutions positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third position performs unexpectedly, Financial Institutions 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 Financial Institutions will offset losses from the drop in Financial Institutions' long position.| Fifth Third vs. KeyCorp | Fifth Third vs. Regions Financial | Fifth Third vs. Zions Bancorporation | Fifth Third vs. Huntington Bancshares Incorporated |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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