Correlation Between Capital One and SoFi Technologies

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

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

Diversification Opportunities for Capital One and SoFi Technologies

-0.39

Correlation Coefficient

Capital One  SoFi Technologies

Very good diversification

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

Pair Corralation between Capital One and SoFi Technologies

Considering the 90-day investment horizon Capital One Financial is expected to generate 0.4 times more return on investment than SoFi Technologies. However, Capital One Financial is 2.49 times less risky than SoFi Technologies. It trades about -0.03 of its potential returns per unit of risk. SoFi Technologies is currently generating about -0.06 per unit of risk. If you would invest  14,530  in Capital One Financial on February 1, 2024 and sell it today you would lose (187.00) from holding Capital One Financial or give up 1.29% of portfolio value over 90 days.

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

Capital One Financial  vs.  SoFi Technologies

Capital One Financial

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Capital One may actually be approaching a critical reversion point that can send shares even higher in June 2024.

SoFi Technologies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SoFi Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Capital One and SoFi Technologies

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

The idea behind Capital One Financial and SoFi Technologies 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.