Correlation Between Raytheon Technologies and Capital One

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

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

Diversification Opportunities for Raytheon Technologies and Capital One

0.62

Correlation Coefficient

Raytheon Technologies  Capital One

Poor diversification

The 3 months correlation between Raytheon and Capital is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Raytheon Technologies 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 Raytheon Technologies 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 Raytheon Technologies 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 Raytheon Technologies i.e., Raytheon Technologies and Capital One go up and down completely randomly.

Pair Corralation between Raytheon Technologies and Capital One

Assuming the 90 days trading horizon Raytheon Technologies is expected to generate 5.84 times less return on investment than Capital One. But when comparing it to its historical volatility, Raytheon Technologies is 1.89 times less risky than Capital One. It trades about 0.07 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  40,857  in Capital One Financial on September 13, 2024 and sell it today you would earn a total of  15,915  from holding Capital One Financial or generate 38.95% return on investment over 90 days.

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

Raytheon Technologies  vs.  Capital One Financial

Raytheon Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Raytheon Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Raytheon Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Capital One Financial

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Capital One sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Raytheon Technologies and Capital One

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

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.