Correlation Between Dell Technologies and Capital One

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

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

Diversification Opportunities for Dell Technologies and Capital One

0.81

Correlation Coefficient

Dell Technologies  Capital One

Very poor diversification

The 3 months correlation between Dell and Capital is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Dell Technologies 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 Dell Technologies 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 Dell Technologies 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 Dell Technologies i.e., Dell Technologies and Capital One go up and down completely randomly.

Pair Corralation between Dell Technologies and Capital One

Assuming the 90 days trading horizon Dell Technologies is expected to generate 10.52 times less return on investment than Capital One. But when comparing it to its historical volatility, Dell Technologies is 1.1 times less risky than Capital One. It trades about 0.04 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  47,114  in Capital One Financial on September 4, 2024 and sell it today you would earn a total of  11,539  from holding Capital One Financial or generate 24.49% return on investment over 90 days.

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

Dell Technologies  vs.  Capital One Financial

Dell Technologies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dell Technologies are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Dell Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Capital One Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 18 (%) 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 Dell Technologies and Capital One

The main advantage of trading using opposite Dell Technologies and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dell Technologies 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 Dell Technologies 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.

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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.