Correlation Between Capital One and United States

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

Diversification Opportunities for Capital One and United States

0.24

Correlation Coefficient

Capital One  United States

Modest diversification

The 3 months correlation between Capital and United is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Capital One i.e., Capital One and United States go up and down completely randomly.

Pair Corralation between Capital One and United States

Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.59 times more return on investment than United States. However, Capital One Financial is 1.7 times less risky than United States. It trades about 0.14 of its potential returns per unit of risk. United States Steel is currently generating about -0.02 per unit of risk. If you would invest  216,854  in Capital One Financial on September 25, 2024 and sell it today you would earn a total of  162,598  from holding Capital One Financial or generate 74.98% return on investment over 90 days.

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

Capital One Financial  vs.  United States Steel

Capital One Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Capital One showed solid returns over the last few months and may actually be approaching a breakup point.

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Capital One and United States

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

The idea behind Capital One Financial and United States Steel 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.