Correlation Between Capital One and KMBB34

Can any of the company-specific risk be diversified away by investing in both Capital One and KMBB34 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 KMBB34 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 KMBB34, you can compare the effects of market volatilities on Capital One and KMBB34 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 KMBB34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and KMBB34.

Diversification Opportunities for Capital One and KMBB34

0.66

Correlation Coefficient

Capital One  KMBB34

Poor diversification

The 3 months correlation between Capital and KMBB34 is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and KMBB34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMBB34 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 KMBB34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMBB34 has no effect on the direction of Capital One i.e., Capital One and KMBB34 go up and down completely randomly.

Pair Corralation between Capital One and KMBB34

Assuming the 90 days trading horizon Capital One Financial is expected to generate 2.01 times more return on investment than KMBB34. However, Capital One is 2.01 times more volatile than KMBB34. It trades about 0.24 of its potential returns per unit of risk. KMBB34 is currently generating about 0.09 per unit of risk. If you would invest  38,747  in Capital One Financial on September 23, 2024 and sell it today you would earn a total of  18,025  from holding Capital One Financial or generate 46.52% return on investment over 90 days.

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

Capital One Financial  vs.  KMBB34

Capital One Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 19 (%) 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.

KMBB34

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KMBB34 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, KMBB34 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital One and KMBB34

The main advantage of trading using opposite Capital One and KMBB34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, KMBB34 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 KMBB34 will offset losses from the drop in KMBB34's long position.

The idea behind Capital One Financial and KMBB34 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.