Correlation Between Capital One and Amazon

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

Diversification Opportunities for Capital One and Amazon

0.91

Correlation Coefficient

Capital One  Amazon

Almost no diversification

The 3 months correlation between Capital and Amazon is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Capital One i.e., Capital One and Amazon go up and down completely randomly.

Pair Corralation between Capital One and Amazon

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.49 times more return on investment than Amazon. However, Capital One is 1.49 times more volatile than Amazon Inc. It trades about 0.24 of its potential returns per unit of risk. Amazon Inc is currently generating about 0.32 per unit of risk. If you would invest  39,860  in Capital One Financial on September 28, 2024 and sell it today you would earn a total of  16,912  from holding Capital One Financial or generate 42.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Capital One Financial  vs.  Amazon Inc

Capital One Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Amazon Inc

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Amazon sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Amazon

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

The idea behind Capital One Financial and Amazon Inc 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.