Correlation Between United Community and Texas Capital

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

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

Diversification Opportunities for United Community and Texas Capital

-0.3

Correlation Coefficient

United Community  Texas Capital

Very good diversification

The 3 months correlation between United and Texas is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding United Community Banks 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 United Community 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 United Community Banks 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 United Community i.e., United Community and Texas Capital go up and down completely randomly.

Pair Corralation between United Community and Texas Capital

Assuming the 90 days horizon United Community Banks is expected to generate 0.7 times more return on investment than Texas Capital. However, United Community Banks is 1.44 times less risky than Texas Capital. It trades about 0.01 of its potential returns per unit of risk. Texas Capital Bancshares is currently generating about -0.08 per unit of risk. If you would invest  2,430  in United Community Banks on September 14, 2024 and sell it today you would earn a total of  4.00  from holding United Community Banks or generate 0.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	28.57%
Values	Daily Returns

United Community Banks  vs.  Texas Capital Bancshares

United Community Banks

Risk-Adjusted Performance

0 of 100

Weak

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

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.

Pair Trading with United Community and Texas Capital

The main advantage of trading using opposite United Community and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Community 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 United Community Banks 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.