Correlation Between Texas Capital and Dime Community

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

Diversification Opportunities for Texas Capital and Dime Community

0.3

Correlation Coefficient

Texas Capital  Dime Community

Weak diversification

The 3 months correlation between Texas and Dime is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Dime Community Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dime Community Bancshares 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 Dime Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dime Community Bancshares has no effect on the direction of Texas Capital i.e., Texas Capital and Dime Community go up and down completely randomly.

Pair Corralation between Texas Capital and Dime Community

Assuming the 90 days horizon Texas Capital Bancshares is expected to generate 0.96 times more return on investment than Dime Community. However, Texas Capital Bancshares is 1.04 times less risky than Dime Community. It trades about 0.09 of its potential returns per unit of risk. Dime Community Bancshares is currently generating about 0.06 per unit of risk. If you would invest  1,943  in Texas Capital Bancshares on December 25, 2024 and sell it today you would earn a total of  93.00  from holding Texas Capital Bancshares or generate 4.79% return on investment over 90 days.

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

Texas Capital Bancshares  vs.  Dime Community Bancshares

Texas Capital Bancshares

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Texas Capital is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Dime Community Bancshares

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dime Community Bancshares are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable primary indicators, Dime Community is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Texas Capital and Dime Community

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

The idea behind Texas Capital Bancshares and Dime Community 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.