Correlation Between Capital One and Telefnica

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

Diversification Opportunities for Capital One and Telefnica

0.77

Correlation Coefficient

Capital One  Telefnica

Poor diversification

The 3 months correlation between Capital and Telefnica is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA 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 Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of Capital One i.e., Capital One and Telefnica go up and down completely randomly.

Pair Corralation between Capital One and Telefnica

Assuming the 90 days trading horizon Capital One Financial is expected to under-perform the Telefnica. In addition to that, Capital One is 1.7 times more volatile than Telefnica SA. It trades about -0.03 of its total potential returns per unit of risk. Telefnica SA is currently generating about 0.22 per unit of volatility. If you would invest  8,537  in Telefnica SA on September 25, 2024 and sell it today you would earn a total of  323.00  from holding Telefnica SA or generate 3.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.24%
Values	Daily Returns

Capital One Financial  vs.  Telefnica SA

Capital One Financial

Risk-Adjusted Performance

0 of 100

Good

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 weak technical and fundamental indicators, Capital One showed solid returns over the last few months and may actually be approaching a breakup point.

Telefnica SA

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Telefnica may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital One and Telefnica

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

The idea behind Capital One Financial and Telefnica SA 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.