Correlation Between Capital One and Ross Stores

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

Diversification Opportunities for Capital One and Ross Stores

0.76

Correlation Coefficient

Capital One  Ross Stores

Poor diversification

The 3 months correlation between Capital and Ross is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Capital One i.e., Capital One and Ross Stores go up and down completely randomly.

Pair Corralation between Capital One and Ross Stores

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.68 times more return on investment than Ross Stores. However, Capital One is 1.68 times more volatile than Ross Stores. It trades about 0.25 of its potential returns per unit of risk. Ross Stores is currently generating about 0.12 per unit of risk. If you would invest  38,747  in Capital One Financial on September 17, 2024 and sell it today you would earn a total of  18,025  from holding Capital One Financial or generate 46.52% 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.  Ross Stores

Capital One Financial

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Ross Stores

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Ross Stores are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Ross Stores may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital One and Ross Stores

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

The idea behind Capital One Financial and Ross Stores 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .