Correlation Between Capital One and Zions Bancorporation

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

Diversification Opportunities for Capital One and Zions Bancorporation

0.58

Correlation Coefficient

Capital One  Zions Bancorporation

Very weak diversification

The 3 months correlation between Capital and Zions is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Zions Bancorp. National in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zions Bancorporation 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 Zions Bancorporation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zions Bancorporation has no effect on the direction of Capital One i.e., Capital One and Zions Bancorporation go up and down completely randomly.

Pair Corralation between Capital One and Zions Bancorporation

Assuming the 90 days trading horizon Capital One is expected to generate 1.72 times less return on investment than Zions Bancorporation. In addition to that, Capital One is 1.66 times more volatile than Zions Bancorporation National. It trades about 0.03 of its total potential returns per unit of risk. Zions Bancorporation National is currently generating about 0.09 per unit of volatility. If you would invest  1,982  in Zions Bancorporation National on September 14, 2024 and sell it today you would earn a total of  516.00  from holding Zions Bancorporation National or generate 26.03% 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.  Zions Bancorp. National

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 current stock price confusion, may contribute to short-horizon losses for the traders.

Zions Bancorporation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zions Bancorporation National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Zions Bancorporation is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Capital One and Zions Bancorporation

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

The idea behind Capital One Financial and Zions Bancorporation National 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.