Correlation Between Fifth Third and Truist Financial

Can any of the company-specific risk be diversified away by investing in both Fifth Third and Truist Financial 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 Truist Financial 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 Truist Financial Corp, you can compare the effects of market volatilities on Fifth Third and Truist Financial 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 Truist Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fifth Third and Truist Financial.

Diversification Opportunities for Fifth Third and Truist Financial

1.0

Correlation Coefficient

Fifth Third  Truist Financial

No risk reduction

The 3 months correlation between Fifth and Truist is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Fifth Third Bancorp and Truist Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truist Financial Corp 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 Truist Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truist Financial Corp has no effect on the direction of Fifth Third i.e., Fifth Third and Truist Financial go up and down completely randomly.

Pair Corralation between Fifth Third and Truist Financial

Given the investment horizon of 90 days Fifth Third Bancorp is expected to generate 0.94 times more return on investment than Truist Financial. However, Fifth Third Bancorp is 1.06 times less risky than Truist Financial. It trades about -0.06 of its potential returns per unit of risk. Truist Financial Corp is currently generating about -0.07 per unit of risk. If you would invest  4,404  in Fifth Third Bancorp on February 15, 2025 and sell it today you would lose (455.00) from holding Fifth Third Bancorp or give up 10.33% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Fifth Third Bancorp  vs.  Truist Financial Corp

Fifth Third Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fifth Third Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Truist Financial Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Truist Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Fifth Third and Truist Financial

The main advantage of trading using opposite Fifth Third and Truist Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fifth Third position performs unexpectedly, Truist Financial 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 Truist Financial will offset losses from the drop in Truist Financial's long position.

The idea behind Fifth Third Bancorp and Truist Financial Corp 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.