Correlation Between BancFirst and Texas Capital

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

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

Diversification Opportunities for BancFirst and Texas Capital

0.86

Correlation Coefficient

BancFirst  Texas Capital

Very poor diversification

The 3 months correlation between BancFirst and Texas is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BancFirst 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 BancFirst 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 BancFirst 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 BancFirst i.e., BancFirst and Texas Capital go up and down completely randomly.

Pair Corralation between BancFirst and Texas Capital

Given the investment horizon of 90 days BancFirst is expected to under-perform the Texas Capital. But the stock apears to be less risky and, when comparing its historical volatility, BancFirst is 1.23 times less risky than Texas Capital. The stock trades about -0.08 of its potential returns per unit of risk. The Texas Capital Bancshares is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  7,772  in Texas Capital Bancshares on December 29, 2024 and sell it today you would lose (393.00) from holding Texas Capital Bancshares or give up 5.06% of portfolio value over 90 days.

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

BancFirst  vs.  Texas Capital Bancshares

BancFirst

Risk-Adjusted Performance

Very Weak

Over the last 90 days BancFirst has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Texas Capital Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Texas Capital Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Texas Capital is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with BancFirst and Texas Capital

The main advantage of trading using opposite BancFirst and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BancFirst 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 BancFirst 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.