Correlation Between Capital One and Bank of America
Can any of the company-specific risk be diversified away by investing in both Capital One and Bank of America 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 Bank of America 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 Bank of America, you can compare the effects of market volatilities on Capital One and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Bank of America.
Diversification Opportunities for Capital One and Bank of America
0.91 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Capital and Bank is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America 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 Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America has no effect on the direction of Capital One i.e., Capital One and Bank of America go up and down completely randomly.
Pair Corralation between Capital One and Bank of America
Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.87 times more return on investment than Bank of America. However, Capital One is 1.87 times more volatile than Bank of America. It trades about 0.28 of its potential returns per unit of risk. Bank of America is currently generating about 0.28 per unit of risk. If you would invest 44,197 in Capital One Financial on August 24, 2024 and sell it today you would earn a total of 9,707 from holding Capital One Financial or generate 21.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Capital One Financial vs. Bank of America
Performance |
| Timeline |
| Capital One Financial |
| Bank of America |
Capital One and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital One and Bank of America
The main advantage of trading using opposite Capital One and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.The idea behind Capital One Financial and Bank of America 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.| Bank of America vs. BTG Pactual Logstica | Bank of America vs. Plano Plano Desenvolvimento | Bank of America vs. Companhia Habitasul de | Bank of America vs. The Procter Gamble |
Check out your portfolio center.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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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