Correlation Between Federal Agricultural and Capital One

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

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

Diversification Opportunities for Federal Agricultural and Capital One

0.84

Correlation Coefficient

Federal Agricultural  Capital One

Very poor diversification

The 3 months correlation between Federal and Capital is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage 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 Federal Agricultural 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 Federal Agricultural Mortgage 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 Federal Agricultural i.e., Federal Agricultural and Capital One go up and down completely randomly.

Pair Corralation between Federal Agricultural and Capital One

Assuming the 90 days trading horizon Federal Agricultural is expected to generate 1.03 times less return on investment than Capital One. In addition to that, Federal Agricultural is 1.01 times more volatile than Capital One Financial. It trades about 0.03 of its total potential returns per unit of risk. Capital One Financial is currently generating about 0.03 per unit of volatility. If you would invest  1,629  in Capital One Financial on September 24, 2024 and sell it today you would earn a total of  302.00  from holding Capital One Financial or generate 18.54% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  Capital One Financial

Federal Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Preferred Stock's primary indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Capital One Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Federal Agricultural and Capital One

The main advantage of trading using opposite Federal Agricultural and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural 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 Federal Agricultural Mortgage 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.