Correlation Between Capital One and MetLife Preferred

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

Diversification Opportunities for Capital One and MetLife Preferred

0.81

Correlation Coefficient

Capital One  MetLife Preferred

Very poor diversification

The 3 months correlation between Capital and MetLife is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and MetLife Preferred Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MetLife Preferred Stock 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 MetLife Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MetLife Preferred Stock has no effect on the direction of Capital One i.e., Capital One and MetLife Preferred go up and down completely randomly.

Pair Corralation between Capital One and MetLife Preferred

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.13 times more return on investment than MetLife Preferred. However, Capital One is 1.13 times more volatile than MetLife Preferred Stock. It trades about 0.11 of its potential returns per unit of risk. MetLife Preferred Stock is currently generating about 0.06 per unit of risk. If you would invest  1,868  in Capital One Financial on December 23, 2024 and sell it today you would earn a total of  135.00  from holding Capital One Financial or generate 7.23% return on investment over 90 days.

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

Capital One Financial  vs.  MetLife Preferred Stock

Capital One Financial

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly sluggish technical and fundamental indicators, Capital One may actually be approaching a critical reversion point that can send shares even higher in April 2025.

MetLife Preferred Stock

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in MetLife Preferred Stock are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, MetLife Preferred is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Capital One and MetLife Preferred

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

The idea behind Capital One Financial and MetLife Preferred Stock 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.