Correlation Between Capital One and Baron Capital

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

Diversification Opportunities for Capital One and Baron Capital

0.03

Correlation Coefficient

Capital One  Baron Capital

Significant diversification

The 3 months correlation between Capital and Baron is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Baron Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baron Capital 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 Baron Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baron Capital has no effect on the direction of Capital One i.e., Capital One and Baron Capital go up and down completely randomly.

Pair Corralation between Capital One and Baron Capital

Considering the 90-day investment horizon Capital One is expected to generate 102.73 times less return on investment than Baron Capital. But when comparing it to its historical volatility, Capital One Financial is 10.71 times less risky than Baron Capital. It trades about 0.01 of its potential returns per unit of risk. Baron Capital is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  0.01  in Baron Capital on December 28, 2024 and sell it today you would earn a total of  0.01  from holding Baron Capital or generate 100.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.77%
Values	Daily Returns

Capital One Financial  vs.  Baron Capital

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. Despite nearly stable basic indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Baron Capital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Baron Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Baron Capital reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Baron Capital

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

The idea behind Capital One Financial and Baron Capital 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.