Correlation Between Capital One and Heartland Financial

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

Diversification Opportunities for Capital One and Heartland Financial

0.73

Correlation Coefficient

Capital One  Heartland Financial

Poor diversification

The 3 months correlation between Capital and Heartland is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Heartland Financial USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heartland Financial USA 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 Heartland Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heartland Financial USA has no effect on the direction of Capital One i.e., Capital One and Heartland Financial go up and down completely randomly.

Pair Corralation between Capital One and Heartland Financial

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.83 times more return on investment than Heartland Financial. However, Capital One is 1.83 times more volatile than Heartland Financial USA. It trades about 0.04 of its potential returns per unit of risk. Heartland Financial USA is currently generating about 0.02 per unit of risk. If you would invest  1,790  in Capital One Financial on December 30, 2024 and sell it today you would earn a total of  47.00  from holding Capital One Financial or generate 2.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	37.1%
Values	Daily Returns

Capital One Financial  vs.  Heartland Financial USA

Capital One Financial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady technical and fundamental indicators, Capital One is not utilizing all of its potentials. The recent stock price chaos, may contribute to medium-term losses for the stakeholders.

Heartland Financial USA

Risk-Adjusted Performance

Weak

Over the last 90 days Heartland Financial USA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Heartland Financial 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 Heartland Financial

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

The idea behind Capital One Financial and Heartland Financial USA 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.