Correlation Between Texas Community and Meridian Bank

Can any of the company-specific risk be diversified away by investing in both Texas Community and Meridian Bank 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 Community and Meridian Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Texas Community Bancshares and Meridian Bank, you can compare the effects of market volatilities on Texas Community and Meridian Bank 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 Community with a short position of Meridian Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Community and Meridian Bank.

Diversification Opportunities for Texas Community and Meridian Bank

0.25

Correlation Coefficient

Texas Community  Meridian Bank

Modest diversification

The 3 months correlation between Texas and Meridian is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Texas Community Bancshares and Meridian Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meridian Bank and Texas Community 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 Community Bancshares are associated (or correlated) with Meridian Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meridian Bank has no effect on the direction of Texas Community i.e., Texas Community and Meridian Bank go up and down completely randomly.

Pair Corralation between Texas Community and Meridian Bank

Given the investment horizon of 90 days Texas Community Bancshares is expected to generate 1.31 times more return on investment than Meridian Bank. However, Texas Community is 1.31 times more volatile than Meridian Bank. It trades about 0.09 of its potential returns per unit of risk. Meridian Bank is currently generating about -0.33 per unit of risk. If you would invest  1,570  in Texas Community Bancshares on December 5, 2024 and sell it today you would earn a total of  50.00  from holding Texas Community Bancshares or generate 3.18% return on investment over 90 days.

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

Texas Community Bancshares  vs.  Meridian Bank

Texas Community Banc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Community Bancshares are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Texas Community may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Meridian Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days Meridian Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Texas Community and Meridian Bank

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

The idea behind Texas Community Bancshares and Meridian Bank 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.