Correlation Between Capital One and CIT Group

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

Diversification Opportunities for Capital One and CIT Group

0.6

Correlation Coefficient

Capital One  CIT Group

Poor diversification

The 3 months correlation between Capital and CIT is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and CIT Group Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIT Group Preferred 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 CIT Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIT Group Preferred has no effect on the direction of Capital One i.e., Capital One and CIT Group go up and down completely randomly.

Pair Corralation between Capital One and CIT Group

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.32 times more return on investment than CIT Group. However, Capital One is 1.32 times more volatile than CIT Group Preferred. It trades about 0.08 of its potential returns per unit of risk. CIT Group Preferred is currently generating about 0.04 per unit of risk. If you would invest  1,863  in Capital One Financial on December 28, 2024 and sell it today you would earn a total of  93.00  from holding Capital One Financial or generate 4.99% return on investment over 90 days.

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

Capital One Financial  vs.  CIT Group Preferred

Capital One Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

CIT Group Preferred

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CIT Group Preferred are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental indicators, CIT Group is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Capital One and CIT Group

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

The idea behind Capital One Financial and CIT Group Preferred 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.