Correlation Between Capital Bancorp and Metropolitan Bank

Can any of the company-specific risk be diversified away by investing in both Capital Bancorp and Metropolitan Bank 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 Bancorp and Metropolitan Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Capital Bancorp and Metropolitan Bank Holding, you can compare the effects of market volatilities on Capital Bancorp and Metropolitan Bank 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 Bancorp with a short position of Metropolitan Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Bancorp and Metropolitan Bank.

Diversification Opportunities for Capital Bancorp and Metropolitan Bank

0.87

Correlation Coefficient

Capital Bancorp  Metropolitan Bank

Very poor diversification

The 3 months correlation between Capital and Metropolitan is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Capital Bancorp and Metropolitan Bank Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metropolitan Bank Holding and Capital Bancorp 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 Bancorp are associated (or correlated) with Metropolitan Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metropolitan Bank Holding has no effect on the direction of Capital Bancorp i.e., Capital Bancorp and Metropolitan Bank go up and down completely randomly.

Pair Corralation between Capital Bancorp and Metropolitan Bank

Given the investment horizon of 90 days Capital Bancorp is expected to generate 2.0 times less return on investment than Metropolitan Bank. But when comparing it to its historical volatility, Capital Bancorp is 2.78 times less risky than Metropolitan Bank. It trades about 0.04 of its potential returns per unit of risk. Metropolitan Bank Holding is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  5,801  in Metropolitan Bank Holding on September 23, 2024 and sell it today you would earn a total of  116.00  from holding Metropolitan Bank Holding or generate 2.0% return on investment over 90 days.

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

Capital Bancorp  vs.  Metropolitan Bank Holding

Capital Bancorp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Bancorp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting basic indicators, Capital Bancorp disclosed solid returns over the last few months and may actually be approaching a breakup point.

Metropolitan Bank Holding

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Metropolitan Bank Holding are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental indicators, Metropolitan Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Bancorp and Metropolitan Bank

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

The idea behind Capital Bancorp and Metropolitan Bank Holding 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.