Correlation Between Business First and Texas Capital

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

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

Diversification Opportunities for Business First and Texas Capital

0.82

Correlation Coefficient

Business First  Texas Capital

Very poor diversification

The 3 months correlation between Business and Texas is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Business First Bancshares 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 Business First 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 Business First Bancshares 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 Business First i.e., Business First and Texas Capital go up and down completely randomly.

Pair Corralation between Business First and Texas Capital

Given the investment horizon of 90 days Business First Bancshares is expected to generate 1.1 times more return on investment than Texas Capital. However, Business First is 1.1 times more volatile than Texas Capital Bancshares. It trades about -0.03 of its potential returns per unit of risk. Texas Capital Bancshares is currently generating about -0.04 per unit of risk. If you would invest  2,560  in Business First Bancshares on December 29, 2024 and sell it today you would lose (112.00) from holding Business First Bancshares or give up 4.37% of portfolio value over 90 days.

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

Business First Bancshares  vs.  Texas Capital Bancshares

Business First Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Business First Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Business First is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 Business First and Texas Capital

The main advantage of trading using opposite Business First and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Business First 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 Business First Bancshares 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.