Correlation Between Capital One and Mastercard

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

Diversification Opportunities for Capital One and Mastercard

0.87

Correlation Coefficient

Capital One  Mastercard

Very poor diversification

The 3 months correlation between Capital and Mastercard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Mastercard in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mastercard 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 Mastercard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mastercard has no effect on the direction of Capital One i.e., Capital One and Mastercard go up and down completely randomly.

Pair Corralation between Capital One and Mastercard

Considering the 90-day investment horizon Capital One Financial is expected to generate 2.88 times more return on investment than Mastercard. However, Capital One is 2.88 times more volatile than Mastercard. It trades about 0.22 of its potential returns per unit of risk. Mastercard is currently generating about 0.19 per unit of risk. If you would invest  16,246  in Capital One Financial on August 30, 2024 and sell it today you would earn a total of  2,883  from holding Capital One Financial or generate 17.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Capital One Financial  vs.  Mastercard

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

Mastercard

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mastercard are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Mastercard may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Capital One and Mastercard

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

The idea behind Capital One Financial and Mastercard 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.