Correlation Between Avis Budget and Capital One

Can any of the company-specific risk be diversified away by investing in both Avis Budget and Capital One 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 Avis Budget and Capital One into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Avis Budget Group and Capital One Financial, you can compare the effects of market volatilities on Avis Budget and Capital One 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 Avis Budget with a short position of Capital One. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avis Budget and Capital One.

Diversification Opportunities for Avis Budget and Capital One

0.2

Correlation Coefficient

Avis Budget  Capital One

Modest diversification

The 3 months correlation between Avis and Capital is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Avis Budget Group and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial and Avis Budget 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 Avis Budget Group are associated (or correlated) with Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of Avis Budget i.e., Avis Budget and Capital One go up and down completely randomly.

Pair Corralation between Avis Budget and Capital One

Assuming the 90 days trading horizon Avis Budget is expected to generate 2.59 times less return on investment than Capital One. In addition to that, Avis Budget is 1.61 times more volatile than Capital One Financial. It trades about 0.04 of its total potential returns per unit of risk. Capital One Financial is currently generating about 0.19 per unit of volatility. If you would invest  286,205  in Capital One Financial on September 17, 2024 and sell it today you would earn a total of  93,247  from holding Capital One Financial or generate 32.58% return on investment over 90 days.

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

Avis Budget Group  vs.  Capital One Financial

Avis Budget Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Avis Budget may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Capital One Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Capital One showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Avis Budget and Capital One

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

The idea behind Avis Budget Group and Capital One Financial 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.