Correlation Between Pinnacle Financial and Texas Capital

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

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

Diversification Opportunities for Pinnacle Financial and Texas Capital

0.58

Correlation Coefficient

Pinnacle Financial  Texas Capital

Very weak diversification

The 3 months correlation between Pinnacle and Texas is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Pinnacle Financial Partners 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 Pinnacle Financial 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 Pinnacle Financial Partners 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 Pinnacle Financial i.e., Pinnacle Financial and Texas Capital go up and down completely randomly.

Pair Corralation between Pinnacle Financial and Texas Capital

Assuming the 90 days horizon Pinnacle Financial Partners is expected to generate 0.77 times more return on investment than Texas Capital. However, Pinnacle Financial Partners is 1.3 times less risky than Texas Capital. It trades about 0.03 of its potential returns per unit of risk. Texas Capital Bancshares is currently generating about 0.02 per unit of risk. If you would invest  2,429  in Pinnacle Financial Partners on December 30, 2024 and sell it today you would earn a total of  29.00  from holding Pinnacle Financial Partners or generate 1.19% return on investment over 90 days.

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

Pinnacle Financial Partners  vs.  Texas Capital Bancshares

Pinnacle Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Pinnacle Financial Partners are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Pinnacle Financial is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Texas Capital Bancshares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Texas Capital is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Pinnacle Financial and Texas Capital

The main advantage of trading using opposite Pinnacle Financial and Texas Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pinnacle Financial 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 Pinnacle Financial Partners 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 Anywhere module to track or share privately all of your investments from the convenience of any device.