Correlation Between Heritage Financial and Texas Capital

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

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

Diversification Opportunities for Heritage Financial and Texas Capital

0.86

Correlation Coefficient

Heritage Financial  Texas Capital

Very poor diversification

The 3 months correlation between Heritage and Texas is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Heritage Financial and Texas Capital Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Capital Bancshares and Heritage 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 Heritage Financial are associated (or correlated) with Texas Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Capital Bancshares has no effect on the direction of Heritage Financial i.e., Heritage Financial and Texas Capital go up and down completely randomly.

Pair Corralation between Heritage Financial and Texas Capital

Given the investment horizon of 90 days Heritage Financial is expected to generate 1.66 times less return on investment than Texas Capital. In addition to that, Heritage Financial is 1.25 times more volatile than Texas Capital Bancshares. It trades about 0.12 of its total potential returns per unit of risk. Texas Capital Bancshares is currently generating about 0.24 per unit of volatility. If you would invest  6,610  in Texas Capital Bancshares on August 31, 2024 and sell it today you would earn a total of  2,312  from holding Texas Capital Bancshares or generate 34.98% return on investment over 90 days.

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

Heritage Financial  vs.  Texas Capital Bancshares

Heritage Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Heritage Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Heritage Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Texas Capital Bancshares

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Texas Capital demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heritage Financial and Texas Capital

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

The idea behind Heritage Financial and Texas Capital 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.

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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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.