Correlation Between Capital One and Federal Agricultural
Can any of the company-specific risk be diversified away by investing in both Capital One and Federal Agricultural 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 Federal Agricultural 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 Federal Agricultural Mortgage, you can compare the effects of market volatilities on Capital One and Federal Agricultural 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 Federal Agricultural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Federal Agricultural.
Diversification Opportunities for Capital One and Federal Agricultural
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Federal is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural 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 Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Capital One i.e., Capital One and Federal Agricultural go up and down completely randomly.
Pair Corralation between Capital One and Federal Agricultural
Assuming the 90 days trading horizon Capital One Financial is expected to generate 3.1 times more return on investment than Federal Agricultural. However, Capital One is 3.1 times more volatile than Federal Agricultural Mortgage. It trades about 0.02 of its potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about -0.25 per unit of risk. If you would invest 1,770 in Capital One Financial on August 31, 2024 and sell it today you would earn a total of 6.00 from holding Capital One Financial or generate 0.34% 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. Federal Agricultural Mortgage
Performance |
| Timeline |
| Capital One Financial |
| Federal Agricultural |
Capital One and Federal Agricultural Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Capital One and Federal Agricultural
The main advantage of trading using opposite Capital One and Federal Agricultural positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, Federal Agricultural 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 Federal Agricultural will offset losses from the drop in Federal Agricultural's long position.| Capital One vs. Federal Agricultural Mortgage | Capital One vs. Federal Agricultural Mortgage | Capital One vs. Federal Agricultural Mortgage | Capital One vs. The Allstate |
| Federal Agricultural vs. Federal Agricultural Mortgage | Federal Agricultural vs. Federal Agricultural Mortgage | Federal Agricultural vs. Federal Agricultural Mortgage | Federal Agricultural vs. The Allstate |
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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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