Correlation Between Capital One and Barings BDC

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

Diversification Opportunities for Capital One and Barings BDC

0.56

Correlation Coefficient

Capital One  Barings BDC

Very weak diversification

The 3 months correlation between Capital and Barings is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Barings BDC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Barings BDC 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 Barings BDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Barings BDC has no effect on the direction of Capital One i.e., Capital One and Barings BDC go up and down completely randomly.

Pair Corralation between Capital One and Barings BDC

Considering the 90-day investment horizon Capital One Financial is expected to generate 1.63 times more return on investment than Barings BDC. However, Capital One is 1.63 times more volatile than Barings BDC. It trades about 0.06 of its potential returns per unit of risk. Barings BDC is currently generating about 0.06 per unit of risk. If you would invest  11,367  in Capital One Financial on September 27, 2024 and sell it today you would earn a total of  6,869  from holding Capital One Financial or generate 60.43% return on investment over 90 days.

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

Capital One Financial  vs.  Barings BDC

Capital One Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

Barings BDC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Barings BDC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Barings BDC is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Capital One and Barings BDC

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

The idea behind Capital One Financial and Barings BDC 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.