Correlation Between Texas Capital and Great Southern

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

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

Diversification Opportunities for Texas Capital and Great Southern

0.81

Correlation Coefficient

Texas Capital  Great Southern

Very poor diversification

The 3 months correlation between Texas and Great is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Great Southern Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Southern Bancorp and Texas Capital 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 Texas Capital Bancshares are associated (or correlated) with Great Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Southern Bancorp has no effect on the direction of Texas Capital i.e., Texas Capital and Great Southern go up and down completely randomly.

Pair Corralation between Texas Capital and Great Southern

Given the investment horizon of 90 days Texas Capital Bancshares is expected to generate 0.83 times more return on investment than Great Southern. However, Texas Capital Bancshares is 1.21 times less risky than Great Southern. It trades about 0.24 of its potential returns per unit of risk. Great Southern Bancorp is currently generating about 0.18 per unit of risk. If you would invest  7,695  in Texas Capital Bancshares on September 1, 2024 and sell it today you would earn a total of  1,150  from holding Texas Capital Bancshares or generate 14.94% return on investment over 90 days.

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

Texas Capital Bancshares  vs.  Great Southern Bancorp

Texas Capital Bancshares

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental drivers, Texas Capital demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Great Southern Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Great Southern Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile fundamental drivers, Great Southern may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Texas Capital and Great Southern

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

The idea behind Texas Capital Bancshares and Great Southern Bancorp 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.