Correlation Between Texas Capital and Bank Ozk

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

Diversification Opportunities for Texas Capital and Bank Ozk

0.21

Correlation Coefficient

Texas Capital  Bank Ozk

Modest diversification

The 3 months correlation between Texas and Bank is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and Bank Ozk Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Ozk Preferred 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 Bank Ozk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Ozk Preferred has no effect on the direction of Texas Capital i.e., Texas Capital and Bank Ozk go up and down completely randomly.

Pair Corralation between Texas Capital and Bank Ozk

Assuming the 90 days horizon Texas Capital Bancshares is expected to generate 1.2 times more return on investment than Bank Ozk. However, Texas Capital is 1.2 times more volatile than Bank Ozk Preferred. It trades about 0.03 of its potential returns per unit of risk. Bank Ozk Preferred is currently generating about 0.03 per unit of risk. If you would invest  1,771  in Texas Capital Bancshares on September 4, 2024 and sell it today you would earn a total of  296.00  from holding Texas Capital Bancshares or generate 16.71% 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.  Bank Ozk Preferred

Texas Capital Bancshares

Risk-Adjusted Performance

3 of 100

Modest

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

Bank Ozk Preferred

Risk-Adjusted Performance

1 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bank Ozk Preferred are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Bank Ozk is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Texas Capital and Bank Ozk

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

The idea behind Texas Capital Bancshares and Bank Ozk Preferred 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.