Correlation Between Great Southern and Texas Capital

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

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

Diversification Opportunities for Great Southern and Texas Capital

0.81

Correlation Coefficient

Great Southern  Texas Capital

Very poor diversification

The 3 months correlation between Great and Texas is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Great Southern 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 Great Southern 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 Great Southern 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 Great Southern i.e., Great Southern and Texas Capital go up and down completely randomly.

Pair Corralation between Great Southern and Texas Capital

Given the investment horizon of 90 days Great Southern is expected to generate 1.1 times less return on investment than Texas Capital. In addition to that, Great Southern is 1.21 times more volatile than Texas Capital Bancshares. It trades about 0.18 of its total potential returns per unit of risk. Texas Capital Bancshares is currently generating about 0.24 per unit of volatility. If you would invest  7,695  in Texas Capital Bancshares on September 1, 2024 and sell it today you would earn a total of  1,150  from holding Texas Capital Bancshares or generate 14.94% return on investment over 90 days.

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

Great Southern Bancorp  vs.  Texas Capital Bancshares

Great Southern Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great Southern Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, Great Southern may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Texas Capital Bancshares

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental drivers, Texas Capital demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Great Southern and Texas Capital

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