Correlation Between CAPITAL and Valvoline

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

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

Diversification Opportunities for CAPITAL and Valvoline

0.39

Correlation Coefficient

CAPITAL  Valvoline

Weak diversification

The 3 months correlation between CAPITAL and Valvoline is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding CAPITAL ONE FINL and Valvoline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valvoline and CAPITAL 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 CAPITAL ONE FINL are associated (or correlated) with Valvoline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valvoline has no effect on the direction of CAPITAL i.e., CAPITAL and Valvoline go up and down completely randomly.

Pair Corralation between CAPITAL and Valvoline

Assuming the 90 days trading horizon CAPITAL ONE FINL is expected to generate 0.27 times more return on investment than Valvoline. However, CAPITAL ONE FINL is 3.65 times less risky than Valvoline. It trades about -0.09 of its potential returns per unit of risk. Valvoline is currently generating about -0.03 per unit of risk. If you would invest  9,886  in CAPITAL ONE FINL on September 3, 2024 and sell it today you would lose (276.00) from holding CAPITAL ONE FINL or give up 2.79% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

CAPITAL ONE FINL  vs.  Valvoline

CAPITAL ONE FINL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAPITAL ONE FINL has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, CAPITAL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Valvoline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Valvoline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Valvoline is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with CAPITAL and Valvoline

The main advantage of trading using opposite CAPITAL and Valvoline positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAPITAL position performs unexpectedly, Valvoline 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 Valvoline will offset losses from the drop in Valvoline's long position.

The idea behind CAPITAL ONE FINL and Valvoline 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.