Correlation Between Capital One and Alphabet

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

Diversification Opportunities for Capital One and Alphabet

0.79

Correlation Coefficient

Capital One  Alphabet

Poor diversification

The 3 months correlation between Capital and Alphabet is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Alphabet Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of Capital One i.e., Capital One and Alphabet go up and down completely randomly.

Pair Corralation between Capital One and Alphabet

Assuming the 90 days trading horizon Capital One is expected to generate 1.03 times less return on investment than Alphabet. In addition to that, Capital One is 1.21 times more volatile than Alphabet Inc. It trades about 0.08 of its total potential returns per unit of risk. Alphabet Inc is currently generating about 0.1 per unit of volatility. If you would invest  172,688  in Alphabet Inc on October 3, 2024 and sell it today you would earn a total of  224,312  from holding Alphabet Inc or generate 129.89% return on investment over 90 days.

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

Capital One Financial  vs.  Alphabet Inc

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.

Alphabet

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Alphabet Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Alphabet showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Alphabet

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

The idea behind Capital One Financial and Alphabet Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.