Correlation Between HP and CAPITAL

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

By analyzing existing cross correlation between HP Inc and CAPITAL ONE FINANCIAL, you can compare the effects of market volatilities on HP and CAPITAL 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 HP with a short position of CAPITAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of HP and CAPITAL.

Diversification Opportunities for HP and CAPITAL

0.6

Correlation Coefficient

HP  CAPITAL

Poor diversification

The 3 months correlation between HP and CAPITAL is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding HP Inc 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 HP 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 HP Inc are associated (or correlated) with CAPITAL. 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 HP i.e., HP and CAPITAL go up and down completely randomly.

Pair Corralation between HP and CAPITAL

Considering the 90-day investment horizon HP Inc is expected to under-perform the CAPITAL. In addition to that, HP is 1.46 times more volatile than CAPITAL ONE FINANCIAL. It trades about -0.24 of its total potential returns per unit of risk. CAPITAL ONE FINANCIAL is currently generating about -0.23 per unit of volatility. If you would invest  9,770  in CAPITAL ONE FINANCIAL on October 7, 2024 and sell it today you would lose (490.00) from holding CAPITAL ONE FINANCIAL or give up 5.02% of portfolio value over 90 days.

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

HP Inc  vs.  CAPITAL ONE FINANCIAL

HP Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days HP Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, HP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

CAPITAL ONE FINANCIAL

Risk-Adjusted Performance

0 of 100

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 somewhat strong basic indicators, CAPITAL is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with HP and CAPITAL

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

The idea behind HP Inc 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.