Correlation Between Texas Capital and Business First

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

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

Diversification Opportunities for Texas Capital and Business First

-0.21

Correlation Coefficient

Texas Capital  Business First

Very good diversification

The 3 months correlation between Texas and Business is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Business First Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Business First Bancshares and Texas Capital 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 Texas Capital Bancshares are associated (or correlated) with Business First. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Business First Bancshares has no effect on the direction of Texas Capital i.e., Texas Capital and Business First go up and down completely randomly.

Pair Corralation between Texas Capital and Business First

Assuming the 90 days horizon Texas Capital Bancshares is expected to under-perform the Business First. But the preferred stock apears to be less risky and, when comparing its historical volatility, Texas Capital Bancshares is 2.07 times less risky than Business First. The preferred stock trades about -0.07 of its potential returns per unit of risk. The Business First Bancshares is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,551  in Business First Bancshares on September 13, 2024 and sell it today you would earn a total of  278.00  from holding Business First Bancshares or generate 10.9% return on investment over 90 days.

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

Texas Capital Bancshares  vs.  Business First Bancshares

Texas Capital Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texas Capital Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Texas Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Business First Bancshares

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Business First Bancshares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Business First may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Texas Capital and Business First

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

The idea behind Texas Capital Bancshares and Business First 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.