Correlation Between McKesson and Capital One

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

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

Diversification Opportunities for McKesson and Capital One

0.6

Correlation Coefficient

McKesson  Capital One

Poor diversification

The 3 months correlation between McKesson and Capital is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding McKesson 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 McKesson 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 McKesson 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 McKesson i.e., McKesson and Capital One go up and down completely randomly.

Pair Corralation between McKesson and Capital One

Assuming the 90 days trading horizon McKesson is expected to generate 1.51 times less return on investment than Capital One. But when comparing it to its historical volatility, McKesson is 1.15 times less risky than Capital One. It trades about 0.16 of its potential returns per unit of risk. Capital One Financial is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  292,280  in Capital One Financial on September 23, 2024 and sell it today you would earn a total of  87,172  from holding Capital One Financial or generate 29.82% return on investment over 90 days.

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

McKesson  vs.  Capital One Financial

McKesson

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McKesson are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, McKesson showed solid returns over the last few months and may actually be approaching a breakup point.

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 McKesson and Capital One

The main advantage of trading using opposite McKesson and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McKesson 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 McKesson 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.