Correlation Between Synchrony Financial and Capital One

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

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

Diversification Opportunities for Synchrony Financial and Capital One

-0.39

Correlation Coefficient

Synchrony Financial  Capital One

Very good diversification

The 3 months correlation between Synchrony and Capital is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Synchrony Financial 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 Synchrony Financial 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 Synchrony Financial 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 Synchrony Financial i.e., Synchrony Financial and Capital One go up and down completely randomly.

Pair Corralation between Synchrony Financial and Capital One

Assuming the 90 days trading horizon Synchrony Financial is expected to generate 2.21 times less return on investment than Capital One. But when comparing it to its historical volatility, Synchrony Financial is 1.19 times less risky than Capital One. It trades about 0.04 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  8,910  in Capital One Financial on September 19, 2024 and sell it today you would earn a total of  8,534  from holding Capital One Financial or generate 95.78% return on investment over 90 days.

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

Synchrony Financial  vs.  Capital One Financial

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.

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 abnormal basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Synchrony Financial and Capital One

The main advantage of trading using opposite Synchrony Financial and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Synchrony Financial 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 Synchrony Financial 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.