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Vulnerability and capacity assessment of hazard-prone communities is integral to the development of efficient disaster risk reduction strategies. Both concepts are known to be inter-linked and inter-dependent in disaster risk science as well as climate change adaptation literature. However, a holistic relationship between these two concepts is rarely studied which this research aims to assess by conducing an empirical study in Pakistan in the context of rural flooding. A total of 120 samples are collected using household survey from four rural communities in two different districts. Indicators are chosen through rigorous literature review and categorized into human, social, economic, physical and natural assets. A total of 24 and 19 indicators for vulnerability and capacity respectively are used to develop the resultant index. Results show that the two analyzed districts have a similar pattern of vulnerabilities; however, in both districts, capacities differ with respect to different livelihood categories. A significant negative correlation is observed in the study area which confirms the relationship theorized in literature between vulnerability and capacity. The methodology adopted in this study can also be replicated to pragmatically validate the relationship between both of these concepts for future extreme climatic events and disasters.