Correlation Between Texas Capital and AutoNation

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

Diversification Opportunities for Texas Capital and AutoNation

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Texas and AutoNation is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and AutoNation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoNation 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 AutoNation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoNation has no effect on the direction of Texas Capital i.e., Texas Capital and AutoNation go up and down completely randomly.

Pair Corralation between Texas Capital and AutoNation

Given the investment horizon of 90 days Texas Capital is expected to generate 6.87 times less return on investment than AutoNation. In addition to that, Texas Capital is 1.1 times more volatile than AutoNation. It trades about 0.01 of its total potential returns per unit of risk. AutoNation is currently generating about 0.07 per unit of volatility. If you would invest  10,494  in AutoNation on December 29, 2023 and sell it today you would earn a total of  6,252  from holding AutoNation or generate 59.58% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Texas Capital Bancshares  vs.  AutoNation

 Performance 
       Timeline  
Texas Capital Bancshares 

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days Texas Capital Bancshares has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, Texas Capital is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.
AutoNation 

Risk-Adjusted Performance

7 of 100

 
Low
 
High
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in AutoNation are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, AutoNation may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Texas Capital and AutoNation Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Texas Capital and AutoNation

The main advantage of trading using opposite Texas Capital and AutoNation positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Texas Capital position performs unexpectedly, AutoNation 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 AutoNation will offset losses from the drop in AutoNation's long position.
The idea behind Texas Capital Bancshares and AutoNation 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.
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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