Correlation Between Capital One and Washington Federal

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

Diversification Opportunities for Capital One and Washington Federal

0.7

Correlation Coefficient

Capital One  Washington Federal

Poor diversification

The 3 months correlation between Capital and Washington is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Washington Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Washington Federal 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 Washington Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Washington Federal has no effect on the direction of Capital One i.e., Capital One and Washington Federal go up and down completely randomly.

Pair Corralation between Capital One and Washington Federal

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Washington Federal. But the preferred stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.32 times less risky than Washington Federal. The preferred stock trades about -0.07 of its potential returns per unit of risk. The Washington Federal is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,839  in Washington Federal on September 13, 2024 and sell it today you would lose (52.00) from holding Washington Federal or give up 2.83% of portfolio value over 90 days.

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

Capital One Financial  vs.  Washington Federal

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. Even with relatively steady technical and fundamental indicators, Capital One is not utilizing all of its potentials. The current stock price chaos, may contribute to medium-term losses for the stakeholders.

Washington Federal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Washington Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, Washington Federal 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 Washington Federal

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

The idea behind Capital One Financial and Washington Federal 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.