Correlation Between Credit Acceptance and Capital One

Can any of the company-specific risk be diversified away by investing in both Credit Acceptance and Capital One 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 Credit Acceptance and Capital One into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Credit Acceptance and Capital One Financial, you can compare the effects of market volatilities on Credit Acceptance and Capital One 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 Credit Acceptance with a short position of Capital One. Check out your portfolio center. Please also check ongoing floating volatility patterns of Credit Acceptance and Capital One.

Diversification Opportunities for Credit Acceptance and Capital One

0.0

Correlation Coefficient

Credit Acceptance  Capital One

Pay attention - limited upside

The 3 months correlation between Credit and Capital is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial and Credit Acceptance 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 Credit Acceptance are associated (or correlated) with Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and Capital One go up and down completely randomly.

Pair Corralation between Credit Acceptance and Capital One

If you would invest  40,857  in Capital One Financial on August 30, 2024 and sell it today you would earn a total of  15,871  from holding Capital One Financial or generate 38.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Credit Acceptance  vs.  Capital One Financial

Credit Acceptance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Credit Acceptance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental indicators, Credit Acceptance is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Credit Acceptance and Capital One

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

The idea behind Credit Acceptance and Capital One Financial 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.