Correlation Between Capital One and BMEB4F

Can any of the company-specific risk be diversified away by investing in both Capital One and BMEB4F 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 BMEB4F 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 BMEB4F, you can compare the effects of market volatilities on Capital One and BMEB4F 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 BMEB4F. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and BMEB4F.

Diversification Opportunities for Capital One and BMEB4F

0.35

Correlation Coefficient

Capital One  BMEB4F

Weak diversification

The 3 months correlation between Capital and BMEB4F is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and BMEB4F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMEB4F 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 BMEB4F. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMEB4F has no effect on the direction of Capital One i.e., Capital One and BMEB4F go up and down completely randomly.

Pair Corralation between Capital One and BMEB4F

Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.53 times more return on investment than BMEB4F. However, Capital One Financial is 1.89 times less risky than BMEB4F. It trades about 0.04 of its potential returns per unit of risk. BMEB4F is currently generating about -0.08 per unit of risk. If you would invest  56,772  in Capital One Financial on October 25, 2024 and sell it today you would earn a total of  384.00  from holding Capital One Financial or generate 0.68% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

Capital One Financial  vs.  BMEB4F

Capital One Financial

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 15 (%) 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.

BMEB4F

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMEB4F has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Capital One and BMEB4F

The main advantage of trading using opposite Capital One and BMEB4F positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One position performs unexpectedly, BMEB4F 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 BMEB4F will offset losses from the drop in BMEB4F's long position.

The idea behind Capital One Financial and BMEB4F 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.