Correlation Between Capital One and Gabelli Healthcare

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

Diversification Opportunities for Capital One and Gabelli Healthcare

0.66

Correlation Coefficient

Capital One  Gabelli Healthcare

Poor diversification

The 3 months correlation between Capital and Gabelli is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Gabelli Healthcare WellnessRx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gabelli Healthcare 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 Gabelli Healthcare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gabelli Healthcare has no effect on the direction of Capital One i.e., Capital One and Gabelli Healthcare go up and down completely randomly.

Pair Corralation between Capital One and Gabelli Healthcare

Considering the 90-day investment horizon Capital One Financial is expected to generate 2.15 times more return on investment than Gabelli Healthcare. However, Capital One is 2.15 times more volatile than Gabelli Healthcare WellnessRx. It trades about 0.1 of its potential returns per unit of risk. Gabelli Healthcare WellnessRx is currently generating about 0.04 per unit of risk. If you would invest  8,990  in Capital One Financial on December 2, 2024 and sell it today you would earn a total of  11,065  from holding Capital One Financial or generate 123.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

Capital One Financial  vs.  Gabelli Healthcare WellnessRx

Capital One Financial

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Capital One may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Gabelli Healthcare

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Capital One and Gabelli Healthcare

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

The idea behind Capital One Financial and Gabelli Healthcare WellnessRx 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.