Correlation Between Capital One and Citizens Financial

Can any of the company-specific risk be diversified away by investing in both Capital One and Citizens Financial 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 Capital One and Citizens Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital One Financial and Citizens Financial Group, you can compare the effects of market volatilities on Capital One and Citizens Financial 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 Capital One with a short position of Citizens Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Citizens Financial.

Diversification Opportunities for Capital One and Citizens Financial

0.91

Correlation Coefficient

Capital One  Citizens Financial

Almost no diversification

The 3 months correlation between Capital and Citizens is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Citizens Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial and Capital One 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 Capital One Financial are associated (or correlated) with Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial has no effect on the direction of Capital One i.e., Capital One and Citizens Financial go up and down completely randomly.

Pair Corralation between Capital One and Citizens Financial

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Citizens Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.17 times less risky than Citizens Financial. The preferred stock trades about -0.18 of its potential returns per unit of risk. The Citizens Financial Group is currently generating about -0.14 of returns per unit of risk over similar time horizon. If you would invest  2,178  in Citizens Financial Group on September 6, 2024 and sell it today you would lose (87.00) from holding Citizens Financial Group or give up 3.99% of portfolio value over 90 days.

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

Capital One Financial  vs.  Citizens Financial Group

Capital One Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Citizens Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Citizens Financial Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Citizens Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Capital One and Citizens Financial

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

The idea behind Capital One Financial and Citizens Financial Group 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.