Correlation Between Capital One and Bank Ozk

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

Diversification Opportunities for Capital One and Bank Ozk

0.5

Correlation Coefficient

Capital One  Bank Ozk

Very weak diversification

The 3 months correlation between Capital and Bank is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Bank Ozk Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank Ozk 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 Bank Ozk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank Ozk Preferred has no effect on the direction of Capital One i.e., Capital One and Bank Ozk go up and down completely randomly.

Pair Corralation between Capital One and Bank Ozk

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Bank Ozk. But the preferred stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.19 times less risky than Bank Ozk. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Bank Ozk Preferred is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  1,728  in Bank Ozk Preferred on September 13, 2024 and sell it today you would lose (10.00) from holding Bank Ozk Preferred or give up 0.58% of portfolio value over 90 days.

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

Capital One Financial  vs.  Bank Ozk Preferred

Capital One Financial

Risk-Adjusted Performance

0 of 100

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 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.

Bank Ozk Preferred

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bank Ozk Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Bank Ozk is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Capital One and Bank Ozk

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

The idea behind Capital One Financial and Bank Ozk 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.