Correlation Between Capital One and Horizon Technology

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

Diversification Opportunities for Capital One and Horizon Technology

-0.92

Correlation Coefficient

Capital One  Horizon Technology

Pay attention - limited upside

The 3 months correlation between Capital and Horizon is -0.92. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Horizon Technology Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Technology 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 Horizon Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Technology has no effect on the direction of Capital One i.e., Capital One and Horizon Technology go up and down completely randomly.

Pair Corralation between Capital One and Horizon Technology

Considering the 90-day investment horizon Capital One Financial is expected to generate 2.64 times more return on investment than Horizon Technology. However, Capital One is 2.64 times more volatile than Horizon Technology Finance. It trades about 0.18 of its potential returns per unit of risk. Horizon Technology Finance is currently generating about -0.21 per unit of risk. If you would invest  14,513  in Capital One Financial on September 3, 2024 and sell it today you would earn a total of  4,688  from holding Capital One Financial or generate 32.3% return on investment over 90 days.

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

Capital One Financial  vs.  Horizon Technology Finance

Capital One Financial

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

Horizon Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Horizon Technology Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Capital One and Horizon Technology

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

The idea behind Capital One Financial and Horizon Technology Finance 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.