Correlation Between International Business and Capital One

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

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

Diversification Opportunities for International Business and Capital One

0.38

Correlation Coefficient

International Business  Capital One

Weak diversification

The 3 months correlation between International and Capital is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding International Business Machine 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 International Business 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 International Business Machines 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 International Business i.e., International Business and Capital One go up and down completely randomly.

Pair Corralation between International Business and Capital One

Assuming the 90 days trading horizon International Business is expected to generate 1.46 times less return on investment than Capital One. But when comparing it to its historical volatility, International Business Machines is 1.12 times less risky than Capital One. It trades about 0.11 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  214,395  in Capital One Financial on October 2, 2024 and sell it today you would earn a total of  165,057  from holding Capital One Financial or generate 76.99% return on investment over 90 days.

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

International Business Machine  vs.  Capital One Financial

International Business

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in International Business Machines are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, International Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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. In spite of fairly weak technical and fundamental indicators, Capital One showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Business and Capital One

The main advantage of trading using opposite International Business and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Business 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 International Business Machines 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 Stocks Directory module to find actively traded stocks across global markets.