Correlation Between Capital One and Allstate

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

Diversification Opportunities for Capital One and Allstate

0.86

Correlation Coefficient

Capital One  Allstate

Very poor diversification

The 3 months correlation between Capital and Allstate is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and The Allstate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allstate 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 Allstate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allstate has no effect on the direction of Capital One i.e., Capital One and Allstate go up and down completely randomly.

Pair Corralation between Capital One and Allstate

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.06 times more return on investment than Allstate. However, Capital One is 1.06 times more volatile than The Allstate. It trades about 0.03 of its potential returns per unit of risk. The Allstate is currently generating about -0.06 per unit of risk. If you would invest  2,069  in Capital One Financial on September 3, 2024 and sell it today you would earn a total of  30.00  from holding Capital One Financial or generate 1.45% 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.  The Allstate

Capital One Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The new stock price confusion, may contribute to short-horizon losses for the traders.

Allstate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Allstate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong essential indicators, Allstate is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Capital One and Allstate

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

The idea behind Capital One Financial and The Allstate 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.