Correlation Between Martin Marietta and Capital One

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

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

Diversification Opportunities for Martin Marietta and Capital One

0.72

Correlation Coefficient

Martin Marietta  Capital One

Poor diversification

The 3 months correlation between Martin and Capital is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Martin Marietta Materials 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 Martin Marietta 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 Martin Marietta Materials 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 Martin Marietta i.e., Martin Marietta and Capital One go up and down completely randomly.

Pair Corralation between Martin Marietta and Capital One

Assuming the 90 days trading horizon Martin Marietta Materials is expected to under-perform the Capital One. But the stock apears to be less risky and, when comparing its historical volatility, Martin Marietta Materials is 1.25 times less risky than Capital One. The stock trades about -0.1 of its potential returns per unit of risk. The Capital One Financial is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  378,312  in Capital One Financial on December 30, 2024 and sell it today you would lose (15,312) from holding Capital One Financial or give up 4.05% of portfolio value over 90 days.

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

Martin Marietta Materials  vs.  Capital One Financial

Martin Marietta Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Martin Marietta Materials has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company 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. In spite of fairly strong technical and fundamental indicators, Capital One is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Martin Marietta and Capital One

The main advantage of trading using opposite Martin Marietta and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Marietta 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 Martin Marietta Materials 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.