Correlation Between Capital One and Texas Capital

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

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

Diversification Opportunities for Capital One and Texas Capital

0.57

Correlation Coefficient

Capital One  Texas Capital

Very weak diversification

The 3 months correlation between Capital and Texas is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial 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 Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Texas Capital go up and down completely randomly.

Pair Corralation between Capital One and Texas Capital

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Texas Capital. But the preferred stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.24 times less risky than Texas Capital. The preferred stock trades about -0.05 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  2,006  in Texas Capital Bancshares on September 4, 2024 and sell it today you would earn a total of  61.00  from holding Texas Capital Bancshares or generate 3.04% return on investment over 90 days.

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

Capital One Financial  vs.  Texas Capital Bancshares

Capital One Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Texas Capital Bancshares

Risk-Adjusted Performance

3 of 100

Modest

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 Capital One and Texas Capital

The main advantage of trading using opposite Capital One and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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 Capital One Financial 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 Global Correlations module to find global opportunities by holding instruments from different markets.