Correlation Between Capital One and Gilead Sciences

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

Diversification Opportunities for Capital One and Gilead Sciences

0.92

Correlation Coefficient

Capital One  Gilead Sciences

Almost no diversification

The 3 months correlation between Capital and Gilead is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Gilead Sciences in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gilead Sciences 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 Gilead Sciences. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gilead Sciences has no effect on the direction of Capital One i.e., Capital One and Gilead Sciences go up and down completely randomly.

Pair Corralation between Capital One and Gilead Sciences

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Gilead Sciences. In addition to that, Capital One is 1.82 times more volatile than Gilead Sciences. It trades about -0.03 of its total potential returns per unit of risk. Gilead Sciences is currently generating about -0.02 per unit of volatility. If you would invest  187,646  in Gilead Sciences on September 27, 2024 and sell it today you would lose (646.00) from holding Gilead Sciences or give up 0.34% of portfolio value over 90 days.

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

Capital One Financial  vs.  Gilead Sciences

Capital One Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 13 (%) 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.

Gilead Sciences

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gilead Sciences are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Gilead Sciences showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Gilead Sciences

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

The idea behind Capital One Financial and Gilead Sciences 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.