Correlation Between Capital One and Palantir Technologies

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

Diversification Opportunities for Capital One and Palantir Technologies

0.95

Correlation Coefficient

Capital One  Palantir Technologies

Almost no diversification

The 3 months correlation between Capital and Palantir is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Palantir Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palantir Technologies 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 Palantir Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palantir Technologies has no effect on the direction of Capital One i.e., Capital One and Palantir Technologies go up and down completely randomly.

Pair Corralation between Capital One and Palantir Technologies

Assuming the 90 days trading horizon Capital One is expected to generate 3.74 times less return on investment than Palantir Technologies. But when comparing it to its historical volatility, Capital One Financial is 2.33 times less risky than Palantir Technologies. It trades about 0.09 of its potential returns per unit of risk. Palantir Technologies is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,438  in Palantir Technologies on September 27, 2024 and sell it today you would earn a total of  15,294  from holding Palantir Technologies or generate 1063.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.74%
Values	Daily Returns

Capital One Financial  vs.  Palantir Technologies

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.

Palantir Technologies

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Palantir Technologies are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Palantir Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Palantir Technologies

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

The idea behind Capital One Financial and Palantir Technologies 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.