Correlation Between Capital One and US Bancorp

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

Diversification Opportunities for Capital One and US Bancorp

0.5

Correlation Coefficient

Capital One  US Bancorp

Very weak diversification

The 3 months correlation between Capital and USB-PH is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp 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 US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of Capital One i.e., Capital One and US Bancorp go up and down completely randomly.

Pair Corralation between Capital One and US Bancorp

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the US Bancorp. In addition to that, Capital One is 1.58 times more volatile than US Bancorp. It trades about -0.04 of its total potential returns per unit of risk. US Bancorp is currently generating about 0.07 per unit of volatility. If you would invest  2,115  in US Bancorp on March 13, 2024 and sell it today you would earn a total of  63.00  from holding US Bancorp or generate 2.98% return on investment over 90 days.

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

Capital One Financial  vs.  US Bancorp

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. Even with relatively steady technical and fundamental indicators, Capital One is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

US Bancorp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in US Bancorp are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong fundamental drivers, US Bancorp is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Capital One and US Bancorp

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

The idea behind Capital One Financial and US Bancorp 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.