Correlation Between Texas Capital and Capital One

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

Diversification Opportunities for Texas Capital and Capital One

0.66

Correlation Coefficient

Texas Capital  Capital One

Poor diversification

The 3 months correlation between Texas and Capital is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial 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 Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Texas Capital i.e., Texas Capital and Capital One go up and down completely randomly.

Pair Corralation between Texas Capital and Capital One

Assuming the 90 days horizon Texas Capital Bancshares is expected to under-perform the Capital One. In addition to that, Texas Capital is 1.23 times more volatile than Capital One Financial. It trades about -0.05 of its total potential returns per unit of risk. Capital One Financial is currently generating about -0.05 per unit of volatility. If you would invest  2,086  in Capital One Financial on September 12, 2024 and sell it today you would lose (70.00) from holding Capital One Financial or give up 3.36% of portfolio value over 90 days.

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

Texas Capital Bancshares  vs.  Capital One Financial

Texas Capital Bancshares

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Texas Capital Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Texas Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Texas Capital and Capital One

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

The idea behind Texas Capital Bancshares and Capital One 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.