Correlation Between Capital One and Petro Rio

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

Diversification Opportunities for Capital One and Petro Rio

-0.11

Correlation Coefficient

Capital One  Petro Rio

Good diversification

The 3 months correlation between Capital and Petro is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Petro Rio SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petro Rio 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 Petro Rio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petro Rio SA has no effect on the direction of Capital One i.e., Capital One and Petro Rio go up and down completely randomly.

Pair Corralation between Capital One and Petro Rio

Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.73 times more return on investment than Petro Rio. However, Capital One Financial is 1.38 times less risky than Petro Rio. It trades about 0.0 of its potential returns per unit of risk. Petro Rio SA is currently generating about -0.03 per unit of risk. If you would invest  58,535  in Capital One Financial on December 2, 2024 and sell it today you would lose (245.00) from holding Capital One Financial or give up 0.42% of portfolio value over 90 days.

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

Capital One Financial  vs.  Petro Rio SA

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 somewhat strong basic indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Petro Rio SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Petro Rio SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Petro Rio is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Capital One and Petro Rio

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

The idea behind Capital One Financial and Petro Rio 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.