Correlation Between Red River and South Plains

Can any of the company-specific risk be diversified away by investing in both Red River and South Plains 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 Red River and South Plains into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Red River and South Plains

0.95

Correlation Coefficient

Red River  South Plains

Almost no diversification

The 3 months correlation between Red and South is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Red River Bancshares and South Plains Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Plains Financial and Red River 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 Red River Bancshares are associated (or correlated) with South Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Plains Financial has no effect on the direction of Red River i.e., Red River and South Plains go up and down completely randomly.

Pair Corralation between Red River and South Plains

Given the investment horizon of 90 days Red River is expected to generate 1.38 times less return on investment than South Plains. But when comparing it to its historical volatility, Red River Bancshares is 1.44 times less risky than South Plains. It trades about 0.11 of its potential returns per unit of risk. South Plains Financial is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,305  in South Plains Financial on September 16, 2024 and sell it today you would earn a total of  559.00  from holding South Plains Financial or generate 16.91% return on investment over 90 days.

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

Red River Bancshares  vs.  South Plains Financial

Red River Bancshares

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Red River Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady fundamental drivers, Red River may actually be approaching a critical reversion point that can send shares even higher in January 2025.

South Plains Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in South Plains Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical and fundamental indicators, South Plains demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Red River and South Plains

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

The idea behind Red River Bancshares and South Plains Financial 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.