Correlation Between Capital One and Valley National

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

Diversification Opportunities for Capital One and Valley National

0.22

Correlation Coefficient

Capital One  Valley National

Modest diversification

The 3 months correlation between Capital and Valley is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Valley National Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valley National Bancorp 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 Valley National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valley National Bancorp has no effect on the direction of Capital One i.e., Capital One and Valley National go up and down completely randomly.

Pair Corralation between Capital One and Valley National

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.72 times more return on investment than Valley National. However, Capital One is 1.72 times more volatile than Valley National Bancorp. It trades about 0.04 of its potential returns per unit of risk. Valley National Bancorp is currently generating about -0.02 per unit of risk. If you would invest  1,790  in Capital One Financial on December 29, 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Capital One Financial  vs.  Valley National Bancorp

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.

Valley National Bancorp

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Capital One and Valley National

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

The idea behind Capital One Financial and Valley National Bancorp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..