Correlation Between Texas Capital and Sandy Spring

Can any of the company-specific risk be diversified away by investing in both Texas Capital and Sandy Spring 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 Sandy Spring 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 Sandy Spring Bancorp, you can compare the effects of market volatilities on Texas Capital and Sandy Spring 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 Sandy Spring. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Capital and Sandy Spring.

Diversification Opportunities for Texas Capital and Sandy Spring

-0.29

Correlation Coefficient

Texas Capital  Sandy Spring

Very good diversification

The 3 months correlation between Texas and Sandy is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Sandy Spring Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sandy Spring Bancorp 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 Sandy Spring. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sandy Spring Bancorp has no effect on the direction of Texas Capital i.e., Texas Capital and Sandy Spring go up and down completely randomly.

Pair Corralation between Texas Capital and Sandy Spring

Assuming the 90 days horizon Texas Capital Bancshares is expected to under-perform the Sandy Spring. But the preferred stock apears to be less risky and, when comparing its historical volatility, Texas Capital Bancshares is 2.04 times less risky than Sandy Spring. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Sandy Spring Bancorp is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,110  in Sandy Spring Bancorp on September 12, 2024 and sell it today you would earn a total of  686.00  from holding Sandy Spring Bancorp or generate 22.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Texas Capital Bancshares  vs.  Sandy Spring Bancorp

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.

Sandy Spring Bancorp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sandy Spring Bancorp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Sandy Spring reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Texas Capital and Sandy Spring

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

The idea behind Texas Capital Bancshares and Sandy Spring Bancorp 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.