Correlation Between Texas Capital and BancFirst

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

Diversification Opportunities for Texas Capital and BancFirst

0.85

Correlation Coefficient

Texas Capital  BancFirst

Very poor diversification

The 3 months correlation between Texas and BancFirst is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Texas Capital Bancshares and BancFirst in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BancFirst 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 BancFirst. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BancFirst has no effect on the direction of Texas Capital i.e., Texas Capital and BancFirst go up and down completely randomly.

Pair Corralation between Texas Capital and BancFirst

Given the investment horizon of 90 days Texas Capital Bancshares is expected to under-perform the BancFirst. In addition to that, Texas Capital is 1.04 times more volatile than BancFirst. It trades about -0.14 of its total potential returns per unit of risk. BancFirst is currently generating about -0.02 per unit of volatility. If you would invest  8,349  in BancFirst on January 16, 2024 and sell it today you would lose (71.00) from holding BancFirst or give up 0.85% of portfolio value over 90 days.

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

Texas Capital Bancshares  vs.  BancFirst

Texas Capital Bancshares

Risk-Adjusted Performance

0 of 100

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 latest weak performance, the Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

BancFirst

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BancFirst has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BancFirst is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Texas Capital and BancFirst

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

The idea behind Texas Capital Bancshares and BancFirst 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.