Correlation Between Capital One and Tesla

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

Diversification Opportunities for Capital One and Tesla

0.88

Correlation Coefficient

Capital One  Tesla

Very poor diversification

The 3 months correlation between Capital and Tesla is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Capital One i.e., Capital One and Tesla go up and down completely randomly.

Pair Corralation between Capital One and Tesla

Assuming the 90 days trading horizon Capital One is expected to generate 14.94 times less return on investment than Tesla. But when comparing it to its historical volatility, Capital One Financial is 2.23 times less risky than Tesla. It trades about 0.06 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.41 of returns per unit of risk over similar time horizon. If you would invest  6,157  in Tesla Inc on September 27, 2024 and sell it today you would earn a total of  2,193  from holding Tesla Inc or generate 35.62% return on investment over 90 days.

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

Capital One Financial  vs.  Tesla Inc

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.

Tesla Inc

Risk-Adjusted Performance

19 of 100

Solid

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

Pair Trading with Capital One and Tesla

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

The idea behind Capital One Financial and Tesla Inc 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.