Correlation Between Capital One and Microsoft
Can any of the company-specific risk be diversified away by investing in both Capital One and Microsoft 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 Microsoft 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 Microsoft, you can compare the effects of market volatilities on Capital One and Microsoft 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 Microsoft. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Microsoft.
Diversification Opportunities for Capital One and Microsoft
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Microsoft is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Microsoft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsoft 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 Microsoft. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsoft has no effect on the direction of Capital One i.e., Capital One and Microsoft go up and down completely randomly.
Pair Corralation between Capital One and Microsoft
Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.25 times more return on investment than Microsoft. However, Capital One is 1.25 times more volatile than Microsoft. It trades about 0.22 of its potential returns per unit of risk. Microsoft is currently generating about 0.08 per unit of risk. If you would invest 35,158 in Capital One Financial on September 2, 2024 and sell it today you would earn a total of 24,408 from holding Capital One Financial or generate 69.42% 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. Microsoft
Performance |
| Timeline |
| Capital One Financial |
| Microsoft |
Capital One and Microsoft Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital One and Microsoft
The main advantage of trading using opposite Capital One and Microsoft positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, Microsoft 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 Microsoft will offset losses from the drop in Microsoft's long position.| Capital One vs. Taiwan Semiconductor Manufacturing | Capital One vs. Metalurgica Gerdau SA | Capital One vs. Apartment Investment and | Capital One vs. NXP Semiconductors NV |
| Microsoft vs. Marfrig Global Foods | Microsoft vs. American Airlines Group | Microsoft vs. Monster Beverage | Microsoft vs. Credit Acceptance |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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