Correlation Between Capital One and Synchrony Financial

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

Diversification Opportunities for Capital One and Synchrony Financial

-0.32

Correlation Coefficient

Capital One  Synchrony Financial

Very good diversification

The 3 months correlation between Capital and Synchrony is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Synchrony Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Synchrony Financial 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 Synchrony Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Synchrony Financial has no effect on the direction of Capital One i.e., Capital One and Synchrony Financial go up and down completely randomly.

Pair Corralation between Capital One and Synchrony Financial

Considering the 90-day investment horizon Capital One Financial is expected to generate 1.11 times more return on investment than Synchrony Financial. However, Capital One is 1.11 times more volatile than Synchrony Financial. It trades about -0.03 of its potential returns per unit of risk. Synchrony Financial is currently generating about -0.14 per unit of risk. If you would invest  18,069  in Capital One Financial on September 21, 2024 and sell it today you would lose (204.00) from holding Capital One Financial or give up 1.13% of portfolio value over 90 days.

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

Capital One Financial  vs.  Synchrony Financial

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.

Synchrony Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Synchrony Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Capital One and Synchrony Financial

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

The idea behind Capital One Financial and Synchrony Financial 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..