Correlation Between Capital One and United Airlines

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

Diversification Opportunities for Capital One and United Airlines

0.42

Correlation Coefficient

Capital One  United Airlines

Very weak diversification

The 3 months correlation between Capital and United is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and United Airlines Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Airlines Holdings 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 United Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Airlines Holdings has no effect on the direction of Capital One i.e., Capital One and United Airlines go up and down completely randomly.

Pair Corralation between Capital One and United Airlines

Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.36 times more return on investment than United Airlines. However, Capital One Financial is 2.74 times less risky than United Airlines. It trades about -0.16 of its potential returns per unit of risk. United Airlines Holdings is currently generating about -0.27 per unit of risk. If you would invest  417,055  in Capital One Financial on December 1, 2024 and sell it today you would lose (12,652) from holding Capital One Financial or give up 3.03% of portfolio value over 90 days.

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

Capital One Financial  vs.  United Airlines Holdings

Capital One Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

United Airlines Holdings

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Capital One and United Airlines

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

The idea behind Capital One Financial and United Airlines Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.