Correlation Between Franklin Financial and Veritex Holdings

Can any of the company-specific risk be diversified away by investing in both Franklin Financial and Veritex Holdings 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 Franklin Financial and Veritex Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Franklin Financial Services and Veritex Holdings, you can compare the effects of market volatilities on Franklin Financial and Veritex Holdings 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 Franklin Financial with a short position of Veritex Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of Franklin Financial and Veritex Holdings.

Diversification Opportunities for Franklin Financial and Veritex Holdings

0.57

Correlation Coefficient

Franklin Financial  Veritex Holdings

Very weak diversification

The 3 months correlation between Franklin and Veritex is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Franklin Financial Services and Veritex Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veritex Holdings and Franklin Financial 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 Franklin Financial Services are associated (or correlated) with Veritex Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veritex Holdings has no effect on the direction of Franklin Financial i.e., Franklin Financial and Veritex Holdings go up and down completely randomly.

Pair Corralation between Franklin Financial and Veritex Holdings

Given the investment horizon of 90 days Franklin Financial is expected to generate 3.0 times less return on investment than Veritex Holdings. But when comparing it to its historical volatility, Franklin Financial Services is 1.62 times less risky than Veritex Holdings. It trades about 0.08 of its potential returns per unit of risk. Veritex Holdings is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,502  in Veritex Holdings on August 30, 2024 and sell it today you would earn a total of  546.00  from holding Veritex Holdings or generate 21.82% return on investment over 90 days.

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

Franklin Financial Services  vs.  Veritex Holdings

Franklin Financial

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin Financial Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Franklin Financial may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Veritex Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Veritex Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Veritex Holdings showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Franklin Financial and Veritex Holdings

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

The idea behind Franklin Financial Services and Veritex Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.