Correlation Between Capital One and S1YM34

Can any of the company-specific risk be diversified away by investing in both Capital One and S1YM34 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 S1YM34 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 S1YM34, you can compare the effects of market volatilities on Capital One and S1YM34 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 S1YM34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and S1YM34.

Diversification Opportunities for Capital One and S1YM34

0.92

Correlation Coefficient

Capital One  S1YM34

Almost no diversification

The 3 months correlation between Capital and S1YM34 is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and S1YM34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on S1YM34 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 S1YM34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of S1YM34 has no effect on the direction of Capital One i.e., Capital One and S1YM34 go up and down completely randomly.

Pair Corralation between Capital One and S1YM34

Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.75 times more return on investment than S1YM34. However, Capital One Financial is 1.34 times less risky than S1YM34. It trades about 0.25 of its potential returns per unit of risk. S1YM34 is currently generating about 0.14 per unit of risk. If you would invest  38,747  in Capital One Financial on September 22, 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

Capital One Financial  vs.  S1YM34

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.

S1YM34

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in S1YM34 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, S1YM34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and S1YM34

The main advantage of trading using opposite Capital One and S1YM34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, S1YM34 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 S1YM34 will offset losses from the drop in S1YM34's long position.

The idea behind Capital One Financial and S1YM34 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.