Correlation Between Texas Capital and First Guaranty

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

Diversification Opportunities for Texas Capital and First Guaranty

0.51

Correlation Coefficient

Texas Capital  First Guaranty

Very weak diversification

The 3 months correlation between Texas and First is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and First Guaranty Bancshares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Guaranty 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 First Guaranty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Guaranty Bancshares has no effect on the direction of Texas Capital i.e., Texas Capital and First Guaranty go up and down completely randomly.

Pair Corralation between Texas Capital and First Guaranty

Assuming the 90 days horizon Texas Capital Bancshares is expected to generate 0.51 times more return on investment than First Guaranty. However, Texas Capital Bancshares is 1.95 times less risky than First Guaranty. It trades about 0.05 of its potential returns per unit of risk. First Guaranty Bancshares is currently generating about 0.02 per unit of risk. If you would invest  1,941  in Texas Capital Bancshares on December 28, 2024 and sell it today you would earn a total of  49.00  from holding Texas Capital Bancshares or generate 2.52% return on investment over 90 days.

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

Texas Capital Bancshares  vs.  First Guaranty Bancshares

Texas Capital Bancshares

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Capital Bancshares are ranked lower than 3 (%) 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.

First Guaranty Bancshares

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Guaranty Bancshares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, First Guaranty 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 First Guaranty

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

The idea behind Texas Capital Bancshares and First Guaranty 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.