Correlation Between ECB Bancorp and Veritex Holdings

Can any of the company-specific risk be diversified away by investing in both ECB Bancorp and Veritex Holdings 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 ECB Bancorp and Veritex Holdings into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ECB Bancorp and Veritex Holdings, you can compare the effects of market volatilities on ECB Bancorp and Veritex Holdings 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 ECB Bancorp with a short position of Veritex Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of ECB Bancorp and Veritex Holdings.

Diversification Opportunities for ECB Bancorp and Veritex Holdings

-0.62

Correlation Coefficient

ECB Bancorp  Veritex Holdings

Excellent diversification

The 3 months correlation between ECB and Veritex is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding ECB Bancorp and Veritex Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Veritex Holdings and ECB Bancorp 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 ECB Bancorp are associated (or correlated) with Veritex Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Veritex Holdings has no effect on the direction of ECB Bancorp i.e., ECB Bancorp and Veritex Holdings go up and down completely randomly.

Pair Corralation between ECB Bancorp and Veritex Holdings

Given the investment horizon of 90 days ECB Bancorp is expected to generate 0.5 times more return on investment than Veritex Holdings. However, ECB Bancorp is 2.0 times less risky than Veritex Holdings. It trades about 0.22 of its potential returns per unit of risk. Veritex Holdings is currently generating about -0.08 per unit of risk. If you would invest  1,515  in ECB Bancorp on January 30, 2025 and sell it today you would earn a total of  130.00  from holding ECB Bancorp or generate 8.58% return on investment over 90 days.

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

ECB Bancorp  vs.  Veritex Holdings

ECB Bancorp

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ECB Bancorp are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady fundamental drivers, ECB Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Veritex Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Veritex Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with ECB Bancorp and Veritex Holdings

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

The idea behind ECB Bancorp and Veritex Holdings 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 Anywhere module to track or share privately all of your investments from the convenience of any device.