Correlation Between Capital One and Consumer Portfolio

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

Diversification Opportunities for Capital One and Consumer Portfolio

0.88

Correlation Coefficient

Capital One  Consumer Portfolio

Very poor diversification

The 3 months correlation between Capital and Consumer is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Consumer Portfolio Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumer Portfolio 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 Consumer Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumer Portfolio has no effect on the direction of Capital One i.e., Capital One and Consumer Portfolio go up and down completely randomly.

Pair Corralation between Capital One and Consumer Portfolio

Considering the 90-day investment horizon Capital One Financial is expected to under-perform the Consumer Portfolio. In addition to that, Capital One is 1.07 times more volatile than Consumer Portfolio Services. It trades about -0.17 of its total potential returns per unit of risk. Consumer Portfolio Services is currently generating about 0.08 per unit of volatility. If you would invest  1,036  in Consumer Portfolio Services on September 27, 2024 and sell it today you would earn a total of  22.00  from holding Consumer Portfolio Services or generate 2.12% return on investment over 90 days.

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

Capital One Financial  vs.  Consumer Portfolio Services

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.

Consumer Portfolio

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Portfolio Services are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Consumer Portfolio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital One and Consumer Portfolio

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

The idea behind Capital One Financial and Consumer Portfolio Services 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.