Correlation Between First Citizens and Capital One

Can any of the company-specific risk be diversified away by investing in both First Citizens and Capital One 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 First Citizens and Capital One into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First Citizens BancShares and Capital One Financial, you can compare the effects of market volatilities on First Citizens and Capital One 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 First Citizens with a short position of Capital One. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Citizens and Capital One.

Diversification Opportunities for First Citizens and Capital One

0.42

Correlation Coefficient

First Citizens  Capital One

Very weak diversification

The 3 months correlation between First and Capital is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding First Citizens BancShares and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial and First Citizens 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 First Citizens BancShares are associated (or correlated) with Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of First Citizens i.e., First Citizens and Capital One go up and down completely randomly.

Pair Corralation between First Citizens and Capital One

Assuming the 90 days horizon First Citizens BancShares is expected to generate 1.24 times more return on investment than Capital One. However, First Citizens is 1.24 times more volatile than Capital One Financial. It trades about 0.02 of its potential returns per unit of risk. Capital One Financial is currently generating about -0.06 per unit of risk. If you would invest  2,268  in First Citizens BancShares on September 13, 2024 and sell it today you would earn a total of  27.00  from holding First Citizens BancShares or generate 1.19% return on investment over 90 days.

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

First Citizens BancShares  vs.  Capital One Financial

First Citizens BancShares

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in First Citizens BancShares are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, First Citizens is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

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. Despite fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Citizens and Capital One

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

The idea behind First Citizens BancShares and Capital One 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.