Correlation Between Texas Capital and Heartland Financial

Can any of the company-specific risk be diversified away by investing in both Texas Capital and Heartland Financial 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 Heartland Financial 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 Heartland Financial USA, you can compare the effects of market volatilities on Texas Capital and Heartland Financial 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 Heartland Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Capital and Heartland Financial.

Diversification Opportunities for Texas Capital and Heartland Financial

0.12

Correlation Coefficient

Texas Capital  Heartland Financial

Average diversification

The 3 months correlation between Texas and Heartland is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Heartland Financial USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Financial USA 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 Heartland Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Financial USA has no effect on the direction of Texas Capital i.e., Texas Capital and Heartland Financial go up and down completely randomly.

Pair Corralation between Texas Capital and Heartland Financial

Given the investment horizon of 90 days Texas Capital Bancshares is expected to under-perform the Heartland Financial. In addition to that, Texas Capital is 1.24 times more volatile than Heartland Financial USA. It trades about -0.04 of its total potential returns per unit of risk. Heartland Financial USA is currently generating about 0.17 per unit of volatility. If you would invest  6,106  in Heartland Financial USA on December 29, 2024 and sell it today you would earn a total of  361.00  from holding Heartland Financial USA or generate 5.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	37.7%
Values	Daily Returns

Texas Capital Bancshares  vs.  Heartland Financial USA

Texas Capital Bancshares

Risk-Adjusted Performance

Very Weak

Over the last 90 days Texas Capital Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Texas Capital is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Heartland Financial USA

Risk-Adjusted Performance

Good

Over the last 90 days Heartland Financial USA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak essential indicators, Heartland Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Texas Capital and Heartland Financial

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

The idea behind Texas Capital Bancshares and Heartland Financial USA 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.