Correlation Between Capital One and Martin Marietta

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

Diversification Opportunities for Capital One and Martin Marietta

0.72

Correlation Coefficient

Capital One  Martin Marietta

Poor diversification

The 3 months correlation between Capital and Martin is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Martin Marietta Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Martin Marietta Materials 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 Martin Marietta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Martin Marietta Materials has no effect on the direction of Capital One i.e., Capital One and Martin Marietta go up and down completely randomly.

Pair Corralation between Capital One and Martin Marietta

Assuming the 90 days trading horizon Capital One Financial is expected to generate 1.25 times more return on investment than Martin Marietta. However, Capital One is 1.25 times more volatile than Martin Marietta Materials. It trades about -0.02 of its potential returns per unit of risk. Martin Marietta Materials is currently generating about -0.1 per unit of risk. If you would invest  378,312  in Capital One Financial on December 30, 2024 and sell it today you would lose (15,312) from holding Capital One Financial or give up 4.05% 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.  Martin Marietta Materials

Capital One Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Martin Marietta Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Martin Marietta Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Capital One and Martin Marietta

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

The idea behind Capital One Financial and Martin Marietta Materials 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.