Correlation Between Capital One and Investcorp Europe

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

Diversification Opportunities for Capital One and Investcorp Europe

-0.68

Correlation Coefficient

Capital One  Investcorp Europe

Excellent diversification

The 3 months correlation between Capital and Investcorp is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Investcorp Europe Acquisition in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Investcorp Europe 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 Investcorp Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Investcorp Europe has no effect on the direction of Capital One i.e., Capital One and Investcorp Europe go up and down completely randomly.

Pair Corralation between Capital One and Investcorp Europe

Considering the 90-day investment horizon Capital One is expected to generate 12.07 times less return on investment than Investcorp Europe. But when comparing it to its historical volatility, Capital One Financial is 17.64 times less risky than Investcorp Europe. It trades about 0.18 of its potential returns per unit of risk. Investcorp Europe Acquisition is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3.60  in Investcorp Europe Acquisition on September 14, 2024 and sell it today you would lose (1.59) from holding Investcorp Europe Acquisition or give up 44.17% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	42.19%
Values	Daily Returns

Capital One Financial  vs.  Investcorp Europe Acquisition

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. Despite nearly weak basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

Investcorp Europe

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Investcorp Europe Acquisition are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal fundamental drivers, Investcorp Europe showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Investcorp Europe

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

The idea behind Capital One Financial and Investcorp Europe Acquisition 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.