Correlation Between Texas Capital and Midland States

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

Diversification Opportunities for Texas Capital and Midland States

0.22

Correlation Coefficient

Texas Capital  Midland States

Modest diversification

The 3 months correlation between Texas and Midland is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Midland States Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Midland States 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 Midland States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Midland States Bancorp has no effect on the direction of Texas Capital i.e., Texas Capital and Midland States go up and down completely randomly.

Pair Corralation between Texas Capital and Midland States

Assuming the 90 days horizon Texas Capital Bancshares is expected to generate 2.06 times more return on investment than Midland States. However, Texas Capital is 2.06 times more volatile than Midland States Bancorp. It trades about 0.08 of its potential returns per unit of risk. Midland States Bancorp is currently generating about 0.04 per unit of risk. If you would invest  2,006  in Texas Capital Bancshares on September 4, 2024 and sell it today you would earn a total of  111.00  from holding Texas Capital Bancshares or generate 5.53% 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.  Midland States Bancorp

Texas Capital Bancshares

Risk-Adjusted Performance

6 of 100

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 recent stock price disarray, may contribute to short-term losses for the investors.

Midland States Bancorp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Midland States Bancorp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward indicators, Midland States 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 Midland States

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

The idea behind Texas Capital Bancshares and Midland States 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.