Correlation Between Chimera Investment and Capital One

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

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

Diversification Opportunities for Chimera Investment and Capital One

0.63

Correlation Coefficient

Chimera Investment  Capital One

Poor diversification

The 3 months correlation between Chimera and Capital is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Chimera Investment 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 Chimera Investment 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 Chimera Investment 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 Chimera Investment i.e., Chimera Investment and Capital One go up and down completely randomly.

Pair Corralation between Chimera Investment and Capital One

Considering the 90-day investment horizon Chimera Investment is expected to under-perform the Capital One. But the stock apears to be less risky and, when comparing its historical volatility, Chimera Investment is 1.32 times less risky than Capital One. The stock trades about -0.03 of its potential returns per unit of risk. The Capital One Financial is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  17,740  in Capital One Financial on December 28, 2024 and sell it today you would lose (387.00) from holding Capital One Financial or give up 2.18% of portfolio value over 90 days.

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

Chimera Investment  vs.  Capital One Financial

Chimera Investment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chimera Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Chimera Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Chimera Investment and Capital One

The main advantage of trading using opposite Chimera Investment and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chimera Investment 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 Chimera Investment 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.