Correlation Between Capital One and VIRG NATL

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

Diversification Opportunities for Capital One and VIRG NATL

0.71

Correlation Coefficient

Capital One  VIRG NATL

Poor diversification

The 3 months correlation between Capital and VIRG is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and VIRG NATL BANKSH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIRG NATL BANKSH 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 VIRG NATL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIRG NATL BANKSH has no effect on the direction of Capital One i.e., Capital One and VIRG NATL go up and down completely randomly.

Pair Corralation between Capital One and VIRG NATL

Assuming the 90 days horizon Capital One Financial is expected to generate 1.06 times more return on investment than VIRG NATL. However, Capital One is 1.06 times more volatile than VIRG NATL BANKSH. It trades about 0.24 of its potential returns per unit of risk. VIRG NATL BANKSH is currently generating about 0.1 per unit of risk. If you would invest  14,949  in Capital One Financial on September 4, 2024 and sell it today you would earn a total of  3,351  from holding Capital One Financial or generate 22.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Capital One Financial  vs.  VIRG NATL BANKSH

Capital One Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

VIRG NATL BANKSH

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VIRG NATL BANKSH are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, VIRG NATL may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital One and VIRG NATL

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

The idea behind Capital One Financial and VIRG NATL BANKSH 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 Transaction History module to view history of all your transactions and understand their impact on performance.