Correlation Between Capital One and Orix Corp

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

Diversification Opportunities for Capital One and Orix Corp

-0.43

Correlation Coefficient

Capital One  Orix Corp

Very good diversification

The 3 months correlation between Capital and Orix is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Orix Corp Ads in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orix Corp Ads 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 Orix Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orix Corp Ads has no effect on the direction of Capital One i.e., Capital One and Orix Corp go up and down completely randomly.

Pair Corralation between Capital One and Orix Corp

Assuming the 90 days horizon Capital One Financial is expected to generate 1.93 times more return on investment than Orix Corp. However, Capital One is 1.93 times more volatile than Orix Corp Ads. It trades about 0.18 of its potential returns per unit of risk. Orix Corp Ads is currently generating about -0.06 per unit of risk. If you would invest  13,155  in Capital One Financial on September 2, 2024 and sell it today you would earn a total of  5,145  from holding Capital One Financial or generate 39.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Capital One Financial  vs.  Orix Corp Ads

Capital One Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

Orix Corp Ads

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orix Corp Ads has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Orix Corp is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Capital One and Orix Corp

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

The idea behind Capital One Financial and Orix Corp Ads 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.