Correlation Between Independent Bank and First Capital

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

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

Diversification Opportunities for Independent Bank and First Capital

-0.65

Correlation Coefficient

Independent Bank  First Capital

Excellent diversification

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

Pair Corralation between Independent Bank and First Capital

Given the investment horizon of 90 days Independent Bank Group is expected to generate 0.51 times more return on investment than First Capital. However, Independent Bank Group is 1.97 times less risky than First Capital. It trades about 0.12 of its potential returns per unit of risk. First Capital is currently generating about -0.27 per unit of risk. 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

Independent Bank Group  vs.  First Capital

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.

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.

Pair Trading with Independent Bank and First Capital

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

The idea behind Independent Bank Group and First Capital 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .