Correlation Between Capital One and Federal Agricultural

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

Diversification Opportunities for Capital One and Federal Agricultural

0.7

Correlation Coefficient

Capital One  Federal Agricultural

Poor diversification

The 3 months correlation between Capital and Federal is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural 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 Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Capital One i.e., Capital One and Federal Agricultural go up and down completely randomly.

Pair Corralation between Capital One and Federal Agricultural

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Federal Agricultural. In addition to that, Capital One is 1.46 times more volatile than Federal Agricultural Mortgage. It trades about -0.04 of its total potential returns per unit of risk. Federal Agricultural Mortgage is currently generating about -0.06 per unit of volatility. If you would invest  2,183  in Federal Agricultural Mortgage on September 5, 2024 and sell it today you would lose (67.00) from holding Federal Agricultural Mortgage or give up 3.07% of portfolio value over 90 days.

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

Capital One Financial  vs.  Federal Agricultural Mortgage

Capital One Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Capital One is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Federal Agricultural

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Capital One and Federal Agricultural

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

The idea behind Capital One Financial and Federal Agricultural Mortgage 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 Transaction History module to view history of all your transactions and understand their impact on performance.