Correlation Between Capital One and SLM Corp

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

Diversification Opportunities for Capital One and SLM Corp

0.79

Correlation Coefficient

Capital One  SLM Corp

Poor diversification

The 3 months correlation between Capital and SLM is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and SLM Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLM Corp 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 SLM Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLM Corp has no effect on the direction of Capital One i.e., Capital One and SLM Corp go up and down completely randomly.

Pair Corralation between Capital One and SLM Corp

Considering the 90-day investment horizon Capital One is expected to generate 1.34 times less return on investment than SLM Corp. But when comparing it to its historical volatility, Capital One Financial is 1.03 times less risky than SLM Corp. It trades about 0.06 of its potential returns per unit of risk. SLM Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,461  in SLM Corp on September 27, 2024 and sell it today you would earn a total of  1,353  from holding SLM Corp or generate 92.61% return on investment over 90 days.

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

Capital One Financial  vs.  SLM Corp

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.

SLM Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SLM Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal essential indicators, SLM Corp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and SLM Corp

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

The idea behind Capital One Financial and SLM Corp 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.