Correlation Between Capital One and Truist Financial

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

Diversification Opportunities for Capital One and Truist Financial

0.33

Correlation Coefficient

Capital One  Truist Financial

Weak diversification

The 3 months correlation between Capital and Truist is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Truist Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truist 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 Truist Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truist Financial has no effect on the direction of Capital One i.e., Capital One and Truist Financial go up and down completely randomly.

Pair Corralation between Capital One and Truist Financial

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Truist Financial. In addition to that, Capital One is 1.07 times more volatile than Truist Financial. It trades about -0.09 of its total potential returns per unit of risk. Truist Financial is currently generating about -0.08 per unit of volatility. If you would invest  25,985  in Truist Financial on December 24, 2024 and sell it today you would lose (2,548) from holding Truist Financial or give up 9.81% of portfolio value over 90 days.

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

Capital One Financial  vs.  Truist Financial

Capital One Financial

Risk-Adjusted Performance

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 latest uncertain performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Truist Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Truist Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Capital One and Truist Financial

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

The idea behind Capital One Financial and Truist 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.