Correlation Between GM and Prosperity Bancshares
Can any of the company-specific risk be diversified away by investing in both GM 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 GM and Prosperity Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Motors and Prosperity Bancshares, you can compare the effects of market volatilities on GM 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 GM with a short position of Prosperity Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of GM and Prosperity Bancshares.
Diversification Opportunities for GM and Prosperity Bancshares
-0.29 | Correlation Coefficient |
Very good diversification
The 3 months correlation between GM and Prosperity is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and GM 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 General Motors 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 GM i.e., GM and Prosperity Bancshares go up and down completely randomly.
Pair Corralation between GM and Prosperity Bancshares
Allowing for the 90-day total investment horizon General Motors is expected to generate 1.05 times more return on investment than Prosperity Bancshares. However, GM is 1.05 times more volatile than Prosperity Bancshares. It trades about 0.05 of its potential returns per unit of risk. Prosperity Bancshares is currently generating about 0.03 per unit of risk. If you would invest 3,586 in General Motors on January 26, 2024 and sell it today you would earn a total of 922.00 from holding General Motors or generate 25.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
General Motors vs. Prosperity Bancshares
Performance |
| Timeline |
| General Motors |
| Prosperity Bancshares |
GM and Prosperity Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GM and Prosperity Bancshares
The main advantage of trading using opposite GM and Prosperity Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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.| Prosperity Bancshares vs. Heartland Financial USA | Prosperity Bancshares vs. Heritage Commerce Corp | Prosperity Bancshares vs. Business First Bancshares | Prosperity Bancshares vs. German American Bancorp |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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