Correlation Between First Capital and Independent Bank

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

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

Diversification Opportunities for First Capital and Independent Bank

-0.65

Correlation Coefficient

First Capital  Independent Bank

Excellent diversification

The 3 months correlation between First and Independent is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding First Capital and Independent Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and First Capital 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 First Capital are associated (or correlated) with Independent Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Independent Bank has no effect on the direction of First Capital i.e., First Capital and Independent Bank go up and down completely randomly.

Pair Corralation between First Capital and Independent Bank

Given the investment horizon of 90 days First Capital is expected to under-perform the Independent Bank. In addition to that, First Capital is 1.97 times more volatile than Independent Bank Group. It trades about -0.27 of its total potential returns per unit of risk. Independent Bank Group is currently generating about 0.12 per unit of volatility. If you would invest  6,383  in Independent Bank Group on September 15, 2024 and sell it today you would earn a total of  189.00  from holding Independent Bank Group or generate 2.96% return on investment over 90 days.

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

First Capital  vs.  Independent Bank Group

First Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, First Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Independent Bank

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Independent Bank showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Capital and Independent Bank

The main advantage of trading using opposite First Capital and Independent Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Capital position performs unexpectedly, Independent Bank 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 Independent Bank will offset losses from the drop in Independent Bank's long position.

The idea behind First Capital and Independent Bank Group 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.