Correlation Between Capital One and Bread Financial

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

Diversification Opportunities for Capital One and Bread Financial

0.85

Correlation Coefficient

Capital One  Bread Financial

Very poor diversification

The 3 months correlation between Capital and Bread is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings 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 Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Capital One i.e., Capital One and Bread Financial go up and down completely randomly.

Pair Corralation between Capital One and Bread Financial

Considering the 90-day investment horizon Capital One Financial is expected to under-perform the Bread Financial. But the stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.44 times less risky than Bread Financial. The stock trades about -0.03 of its potential returns per unit of risk. The Bread Financial Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  5,718  in Bread Financial Holdings on September 21, 2024 and sell it today you would earn a total of  558.00  from holding Bread Financial Holdings or generate 9.76% 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.  Bread Financial Holdings

Capital One Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

Bread Financial Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bread Financial Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Bread Financial demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Bread Financial

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

The idea behind Capital One Financial and Bread Financial Holdings 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..