Correlation Between Capital One and CNB Financial

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

Diversification Opportunities for Capital One and CNB Financial

-0.46

Correlation Coefficient

Capital One  CNB Financial

Very good diversification

The 3 months correlation between Capital and CNB is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and CNB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNB 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 CNB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNB Financial has no effect on the direction of Capital One i.e., Capital One and CNB Financial go up and down completely randomly.

Pair Corralation between Capital One and CNB Financial

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the CNB Financial. But the preferred stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.26 times less risky than CNB Financial. The preferred stock trades about -0.07 of its potential returns per unit of risk. The CNB Financial is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,328  in CNB Financial on September 13, 2024 and sell it today you would earn a total of  176.00  from holding CNB Financial or generate 7.56% return on investment over 90 days.

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

Capital One Financial  vs.  CNB Financial

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 current stock price chaos, may contribute to medium-term losses for the stakeholders.

CNB Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CNB Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, CNB Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital One and CNB Financial

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

The idea behind Capital One Financial and CNB Financial 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.