Correlation Between Capital One and ArcelorMittal

Can any of the company-specific risk be diversified away by investing in both Capital One and ArcelorMittal 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 ArcelorMittal 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 ArcelorMittal SA, you can compare the effects of market volatilities on Capital One and ArcelorMittal 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 ArcelorMittal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and ArcelorMittal.

Diversification Opportunities for Capital One and ArcelorMittal

0.79

Correlation Coefficient

Capital One  ArcelorMittal

Poor diversification

The 3 months correlation between Capital and ArcelorMittal is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and ArcelorMittal SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ArcelorMittal SA 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 ArcelorMittal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ArcelorMittal SA has no effect on the direction of Capital One i.e., Capital One and ArcelorMittal go up and down completely randomly.

Pair Corralation between Capital One and ArcelorMittal

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.21 times more return on investment than ArcelorMittal. However, Capital One is 1.21 times more volatile than ArcelorMittal SA. It trades about 0.21 of its potential returns per unit of risk. ArcelorMittal SA is currently generating about 0.17 per unit of risk. If you would invest  40,857  in Capital One Financial on September 13, 2024 and sell it today you would earn a total of  15,915  from holding Capital One Financial or generate 38.95% 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.  ArcelorMittal SA

Capital One Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 16 (%) 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.

ArcelorMittal SA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ArcelorMittal SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, ArcelorMittal sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and ArcelorMittal

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

The idea behind Capital One Financial and ArcelorMittal SA 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.