Correlation Between German American and Texas Capital

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

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

Diversification Opportunities for German American and Texas Capital

0.66

Correlation Coefficient

German American  Texas Capital

Poor diversification

The 3 months correlation between German and Texas is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding German American Bancorp 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 German American 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 German American Bancorp 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 German American i.e., German American and Texas Capital go up and down completely randomly.

Pair Corralation between German American and Texas Capital

Given the investment horizon of 90 days German American Bancorp is expected to under-perform the Texas Capital. But the stock apears to be less risky and, when comparing its historical volatility, German American Bancorp is 1.34 times less risky than Texas Capital. The stock trades about -0.07 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 28, 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	Significant
Accuracy	100.0%
Values	Daily Returns

German American Bancorp  vs.  Texas Capital Bancshares

German American Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days German American Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, German American is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 German American and Texas Capital

The main advantage of trading using opposite German American and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if German American 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 German American Bancorp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.