Correlation Between Capital One and SK Growth

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

Diversification Opportunities for Capital One and SK Growth

0.72

Correlation Coefficient

Capital One  SK Growth

Poor diversification

The 3 months correlation between Capital and SKGR is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and SK Growth Opportunities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SK Growth Opportunities 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 SK Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SK Growth Opportunities has no effect on the direction of Capital One i.e., Capital One and SK Growth go up and down completely randomly.

Pair Corralation between Capital One and SK Growth

Considering the 90-day investment horizon Capital One Financial is expected to generate 4.6 times more return on investment than SK Growth. However, Capital One is 4.6 times more volatile than SK Growth Opportunities. It trades about 0.07 of its potential returns per unit of risk. SK Growth Opportunities is currently generating about 0.06 per unit of risk. If you would invest  9,964  in Capital One Financial on October 7, 2024 and sell it today you would earn a total of  8,079  from holding Capital One Financial or generate 81.08% return on investment over 90 days.

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

Capital One Financial  vs.  SK Growth Opportunities

Capital One Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Capital One reported solid returns over the last few months and may actually be approaching a breakup point.

SK Growth Opportunities

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SK Growth Opportunities are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, SK Growth is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Capital One and SK Growth

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

The idea behind Capital One Financial and SK Growth Opportunities 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .