Correlation Between Capital One and Lennar

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

Diversification Opportunities for Capital One and Lennar

-0.51

Correlation Coefficient

Capital One  Lennar

Excellent diversification

The 3 months correlation between Capital and Lennar is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Lennar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lennar 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 Lennar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lennar has no effect on the direction of Capital One i.e., Capital One and Lennar go up and down completely randomly.

Pair Corralation between Capital One and Lennar

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.16 times more return on investment than Lennar. However, Capital One is 1.16 times more volatile than Lennar. It trades about 0.24 of its potential returns per unit of risk. Lennar is currently generating about -0.14 per unit of risk. If you would invest  39,860  in Capital One Financial on October 3, 2024 and sell it today you would earn a total of  16,912  from holding Capital One Financial or generate 42.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.67%
Values	Daily Returns

Capital One Financial  vs.  Lennar

Capital One Financial

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 18 (%) 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.

Lennar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lennar 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 Lennar

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

The idea behind Capital One Financial and Lennar 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.