Correlation Between Texas Capital and First Merchants
Can any of the company-specific risk be diversified away by investing in both Texas Capital and First Merchants 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 Merchants 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 Merchants, you can compare the effects of market volatilities on Texas Capital and First Merchants 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 Merchants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Capital and First Merchants.
Diversification Opportunities for Texas Capital and First Merchants
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Texas and First is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and First Merchants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Merchants 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 Merchants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Merchants has no effect on the direction of Texas Capital i.e., Texas Capital and First Merchants go up and down completely randomly.
Pair Corralation between Texas Capital and First Merchants
Assuming the 90 days horizon Texas Capital Bancshares is expected to under-perform the First Merchants. In addition to that, Texas Capital is 2.35 times more volatile than First Merchants. It trades about -0.04 of its total potential returns per unit of risk. First Merchants is currently generating about 0.08 per unit of volatility. If you would invest 2,487 in First Merchants on September 12, 2024 and sell it today you would earn a total of 63.00 from holding First Merchants or generate 2.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Texas Capital Bancshares vs. First Merchants
Performance |
| Timeline |
| Texas Capital Bancshares |
| First Merchants |
Texas Capital and First Merchants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Texas Capital and First Merchants
The main advantage of trading using opposite Texas Capital and First Merchants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Texas Capital position performs unexpectedly, First Merchants 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 Merchants will offset losses from the drop in First Merchants' long position.| Texas Capital vs. Capital One Financial | Texas Capital vs. Capital One Financial | Texas Capital vs. Bank of America |
| First Merchants vs. Heartland Financial USA | First Merchants vs. OceanFirst Financial Corp | First Merchants vs. Old National Bancorp | First Merchants vs. Old National Bancorp |
Check out your portfolio center.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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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