Correlation Between ESH Acquisition and Capital One

Can any of the company-specific risk be diversified away by investing in both ESH Acquisition and Capital One 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 ESH Acquisition and Capital One into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ESH Acquisition Corp and Capital One Financial, you can compare the effects of market volatilities on ESH Acquisition and Capital One 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 ESH Acquisition with a short position of Capital One. Check out your portfolio center. Please also check ongoing floating volatility patterns of ESH Acquisition and Capital One.

Diversification Opportunities for ESH Acquisition and Capital One

-0.11

Correlation Coefficient

ESH Acquisition  Capital One

Good diversification

The 3 months correlation between ESH and Capital is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding ESH Acquisition Corp and Capital One Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital One Financial and ESH Acquisition 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 ESH Acquisition Corp are associated (or correlated) with Capital One. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital One Financial has no effect on the direction of ESH Acquisition i.e., ESH Acquisition and Capital One go up and down completely randomly.

Pair Corralation between ESH Acquisition and Capital One

Given the investment horizon of 90 days ESH Acquisition is expected to generate 15.12 times less return on investment than Capital One. But when comparing it to its historical volatility, ESH Acquisition Corp is 2.76 times less risky than Capital One. It trades about 0.0 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  17,969  in Capital One Financial on December 27, 2024 and sell it today you would earn a total of  14.00  from holding Capital One Financial or generate 0.08% return on investment over 90 days.

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

ESH Acquisition Corp  vs.  Capital One Financial

ESH Acquisition Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days ESH Acquisition Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Capital One Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ESH Acquisition and Capital One

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

The idea behind ESH Acquisition Corp and Capital One Financial 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.