Correlation Between Fifth Third and US Bancorp
Can any of the company-specific risk be diversified away by investing in both Fifth Third and US 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 Fifth Third and US Bancorp 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 US Bancorp, you can compare the effects of market volatilities on Fifth Third and US 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 Fifth Third with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and US Bancorp.
Diversification Opportunities for Fifth Third and US Bancorp
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fifth and USB-PP is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Fifth Third i.e., Fifth Third and US Bancorp go up and down completely randomly.
Pair Corralation between Fifth Third and US Bancorp
Assuming the 90 days horizon Fifth Third Bancorp is expected to generate 0.45 times more return on investment than US Bancorp. However, Fifth Third Bancorp is 2.21 times less risky than US Bancorp. It trades about 0.01 of its potential returns per unit of risk. US Bancorp is currently generating about -0.01 per unit of risk. If you would invest 2,554 in Fifth Third Bancorp on August 24, 2024 and sell it today you would earn a total of 2.00 from holding Fifth Third Bancorp or generate 0.08% 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. US Bancorp
Performance |
| Timeline |
| Fifth Third Bancorp |
| US Bancorp |
Fifth Third and US Bancorp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fifth Third and US Bancorp
The main advantage of trading using opposite Fifth Third and US Bancorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third position performs unexpectedly, US 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 US Bancorp will offset losses from the drop in US Bancorp's long position.| Fifth Third vs. Capital One Financial | Fifth Third vs. Capital One Financial | Fifth Third vs. Bank of America | Fifth Third vs. KeyCorp |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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