Correlation Between Capital One and Porto Seguro

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

Diversification Opportunities for Capital One and Porto Seguro

0.68

Correlation Coefficient

Capital One  Porto Seguro

Poor diversification

The 3 months correlation between Capital and Porto is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Porto Seguro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porto Seguro SA 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 Porto Seguro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porto Seguro SA has no effect on the direction of Capital One i.e., Capital One and Porto Seguro go up and down completely randomly.

Pair Corralation between Capital One and Porto Seguro

Assuming the 90 days trading horizon Capital One Financial is expected to generate 2.2 times more return on investment than Porto Seguro. However, Capital One is 2.2 times more volatile than Porto Seguro SA. It trades about 0.24 of its potential returns per unit of risk. Porto Seguro SA is currently generating about 0.02 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	Significant
Accuracy	100.0%
Values	Daily Returns

Capital One Financial  vs.  Porto Seguro SA

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.

Porto Seguro SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Porto Seguro SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Porto Seguro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Capital One and Porto Seguro

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

The idea behind Capital One Financial and Porto Seguro SA 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 Transaction History module to view history of all your transactions and understand their impact on performance.