Correlation Between Capital One and Yirendai

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

Diversification Opportunities for Capital One and Yirendai

-0.38

Correlation Coefficient

Capital One  Yirendai

Very good diversification

The 3 months correlation between Capital and Yirendai is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Yirendai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yirendai 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 Yirendai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yirendai has no effect on the direction of Capital One i.e., Capital One and Yirendai go up and down completely randomly.

Pair Corralation between Capital One and Yirendai

Considering the 90-day investment horizon Capital One Financial is expected to under-perform the Yirendai. But the stock apears to be less risky and, when comparing its historical volatility, Capital One Financial is 3.44 times less risky than Yirendai. The stock trades about -0.15 of its potential returns per unit of risk. The Yirendai is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  485.00  in Yirendai on September 23, 2024 and sell it today you would lose (14.00) from holding Yirendai or give up 2.89% of portfolio value over 90 days.

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

Capital One Financial  vs.  Yirendai

Capital One Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 8 (%) 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.

Yirendai

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Yirendai are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Yirendai exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital One and Yirendai

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

The idea behind Capital One Financial and Yirendai 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.