Correlation Between Capital One and KeyCorp

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

Diversification Opportunities for Capital One and KeyCorp

0.86
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Capital and KeyCorp is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and KeyCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KeyCorp 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 KeyCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KeyCorp has no effect on the direction of Capital One i.e., Capital One and KeyCorp go up and down completely randomly.

Pair Corralation between Capital One and KeyCorp

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.05 times more return on investment than KeyCorp. However, Capital One is 1.05 times more volatile than KeyCorp. It trades about -0.03 of its potential returns per unit of risk. KeyCorp is currently generating about -0.06 per unit of risk. If you would invest  2,067  in Capital One Financial on November 28, 2024 and sell it today you would lose (59.00) from holding Capital One Financial or give up 2.85% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Capital One Financial  vs.  KeyCorp

 Performance 
       Timeline  
Capital One Financial 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. 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.
KeyCorp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days KeyCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, KeyCorp is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Capital One and KeyCorp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Capital One and KeyCorp

The main advantage of trading using opposite Capital One and KeyCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, KeyCorp 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 KeyCorp will offset losses from the drop in KeyCorp's long position.
The idea behind Capital One Financial and KeyCorp 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.

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