Correlation Between Texas Capital and Northfield Bancorp

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

Diversification Opportunities for Texas Capital and Northfield Bancorp

0.91

Correlation Coefficient

Texas Capital  Northfield Bancorp

Almost no diversification

The 3 months correlation between Texas and Northfield is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Northfield Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northfield 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 Northfield Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northfield Bancorp has no effect on the direction of Texas Capital i.e., Texas Capital and Northfield Bancorp go up and down completely randomly.

Pair Corralation between Texas Capital and Northfield Bancorp

Given the investment horizon of 90 days Texas Capital Bancshares is expected to under-perform the Northfield Bancorp. But the stock apears to be less risky and, when comparing its historical volatility, Texas Capital Bancshares is 1.06 times less risky than Northfield Bancorp. The stock trades about -0.09 of its potential returns per unit of risk. The Northfield Bancorp is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  1,320  in Northfield Bancorp on November 30, 2024 and sell it today you would lose (142.00) from holding Northfield Bancorp or give up 10.76% of portfolio value over 90 days.

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

Texas Capital Bancshares  vs.  Northfield Bancorp

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 latest weak performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Northfield Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northfield Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Texas Capital and Northfield Bancorp

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

The idea behind Texas Capital Bancshares and Northfield 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.