Correlation Between Brookline Bancorp and Prosperity Bancshares
Can any of the company-specific risk be diversified away by investing in both Brookline Bancorp 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 Brookline Bancorp and Prosperity Bancshares into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brookline Bancorp and Prosperity Bancshares, you can compare the effects of market volatilities on Brookline Bancorp 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 Brookline Bancorp with a short position of Prosperity Bancshares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookline Bancorp and Prosperity Bancshares.
Diversification Opportunities for Brookline Bancorp and Prosperity Bancshares
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Brookline and Prosperity is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Brookline Bancorp and Prosperity Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prosperity Bancshares and Brookline Bancorp 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 Brookline Bancorp 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 Brookline Bancorp i.e., Brookline Bancorp and Prosperity Bancshares go up and down completely randomly.
Pair Corralation between Brookline Bancorp and Prosperity Bancshares
Given the investment horizon of 90 days Brookline Bancorp is expected to under-perform the Prosperity Bancshares. In addition to that, Brookline Bancorp is 1.12 times more volatile than Prosperity Bancshares. It trades about -0.15 of its total potential returns per unit of risk. Prosperity Bancshares is currently generating about -0.12 per unit of volatility. If you would invest 6,234 in Prosperity Bancshares on January 20, 2024 and sell it today you would lose (265.00) from holding Prosperity Bancshares or give up 4.25% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Brookline Bancorp vs. Prosperity Bancshares
Performance |
| Timeline |
| Brookline Bancorp |
| Prosperity Bancshares |
Brookline Bancorp and Prosperity Bancshares Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brookline Bancorp and Prosperity Bancshares
The main advantage of trading using opposite Brookline Bancorp and Prosperity Bancshares positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookline Bancorp 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 Brookline Bancorp 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.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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