Correlation Between South Plains and Red River

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

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

Diversification Opportunities for South Plains and Red River

0.95

Correlation Coefficient

South Plains  Red River

Almost no diversification

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

Pair Corralation between South Plains and Red River

Given the investment horizon of 90 days South Plains Financial is expected to under-perform the Red River. In addition to that, South Plains is 1.15 times more volatile than Red River Bancshares. It trades about -0.01 of its total potential returns per unit of risk. Red River Bancshares is currently generating about 0.05 per unit of volatility. If you would invest  5,818  in Red River Bancshares on September 16, 2024 and sell it today you would earn a total of  70.00  from holding Red River Bancshares or generate 1.2% return on investment over 90 days.

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

South Plains Financial  vs.  Red River Bancshares

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.

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.

Pair Trading with South Plains and Red River

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

The idea behind South Plains Financial and Red River 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.