Correlation Between Capital One and Devon Energy

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

Diversification Opportunities for Capital One and Devon Energy

0.25

Correlation Coefficient

Capital One  Devon Energy

Modest diversification

The 3 months correlation between Capital and Devon is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Devon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Devon Energy 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 Devon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Devon Energy has no effect on the direction of Capital One i.e., Capital One and Devon Energy go up and down completely randomly.

Pair Corralation between Capital One and Devon Energy

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Devon Energy. But the stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 1.05 times less risky than Devon Energy. The stock trades about -0.09 of its potential returns per unit of risk. The Devon Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  19,351  in Devon Energy on December 24, 2024 and sell it today you would earn a total of  1,207  from holding Devon Energy or generate 6.24% return on investment over 90 days.

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

Capital One Financial  vs.  Devon Energy

Capital One Financial

Risk-Adjusted Performance

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 Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Devon Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Devon Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Devon Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Capital One and Devon Energy

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

The idea behind Capital One Financial and Devon Energy 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.