Correlation Between Hilltop Holdings and Independent Bank

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

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

Diversification Opportunities for Hilltop Holdings and Independent Bank

0.51

Correlation Coefficient

Hilltop Holdings  Independent Bank

Very weak diversification

The 3 months correlation between Hilltop and Independent is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Hilltop Holdings and Independent Bank Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Independent Bank and Hilltop Holdings 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 Hilltop Holdings 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 Hilltop Holdings i.e., Hilltop Holdings and Independent Bank go up and down completely randomly.

Pair Corralation between Hilltop Holdings and Independent Bank

Considering the 90-day investment horizon Hilltop Holdings is expected to under-perform the Independent Bank. But the stock apears to be less risky and, when comparing its historical volatility, Hilltop Holdings is 1.28 times less risky than Independent Bank. The stock trades about -0.01 of its potential returns per unit of risk. The Independent Bank Group is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,704  in Independent Bank Group on September 2, 2024 and sell it today you would earn a total of  988.00  from holding Independent Bank Group or generate 17.32% return on investment over 90 days.

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

Hilltop Holdings  vs.  Independent Bank Group

Hilltop Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Independent Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Independent Bank Group are ranked lower than 8 (%) 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 Hilltop Holdings and Independent Bank

The main advantage of trading using opposite Hilltop Holdings and Independent Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hilltop Holdings 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 Hilltop Holdings 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.