Correlation Between ATT and Capital One

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

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

Diversification Opportunities for ATT and Capital One

0.89

Correlation Coefficient

ATT  Capital One

Very poor diversification

The 3 months correlation between ATT and Capital is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding ATT 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 ATT 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 ATT Inc 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 ATT i.e., ATT and Capital One go up and down completely randomly.

Pair Corralation between ATT and Capital One

Given the investment horizon of 90 days ATT is expected to generate 1.22 times less return on investment than Capital One. But when comparing it to its historical volatility, ATT Inc is 1.19 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 0.16 of returns per unit of risk over similar time horizon. If you would invest  243,376  in Capital One Financial on October 13, 2024 and sell it today you would earn a total of  129,712  from holding Capital One Financial or generate 53.3% return on investment over 90 days.

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

ATT Inc  vs.  Capital One Financial

ATT Inc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, ATT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Capital One Financial

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 12 (%) 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 ATT and Capital One

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

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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.