Correlation Between Citizens Financial and Texas Capital

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

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

Diversification Opportunities for Citizens Financial and Texas Capital

0.64

Correlation Coefficient

Citizens Financial  Texas Capital

Poor diversification

The 3 months correlation between Citizens and Texas is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group 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 Citizens Financial 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 Citizens Financial Group 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 Citizens Financial i.e., Citizens Financial and Texas Capital go up and down completely randomly.

Pair Corralation between Citizens Financial and Texas Capital

Assuming the 90 days trading horizon Citizens Financial Group is expected to under-perform the Texas Capital. But the preferred stock apears to be less risky and, when comparing its historical volatility, Citizens Financial Group is 1.17 times less risky than Texas Capital. The preferred stock trades about -0.06 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  2,027  in Texas Capital Bancshares on September 5, 2024 and sell it today you would earn a total of  62.00  from holding Texas Capital Bancshares or generate 3.06% return on investment over 90 days.

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

Citizens Financial Group  vs.  Texas Capital Bancshares

Citizens Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citizens Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Citizens Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Texas Capital Bancshares

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 Citizens Financial and Texas Capital

The main advantage of trading using opposite Citizens Financial and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens Financial 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 Citizens Financial Group 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.