Correlation Between Microsoft and Capital One

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

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

Diversification Opportunities for Microsoft and Capital One

-0.4

Correlation Coefficient

Microsoft  Capital One

Very good diversification

The 3 months correlation between Microsoft and Capital is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft 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 Microsoft 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 Microsoft 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 Microsoft i.e., Microsoft and Capital One go up and down completely randomly.

Pair Corralation between Microsoft and Capital One

Given the investment horizon of 90 days Microsoft is expected to under-perform the Capital One. In addition to that, Microsoft is 1.46 times more volatile than Capital One Financial. It trades about -0.03 of its total potential returns per unit of risk. Capital One Financial is currently generating about 0.19 per unit of volatility. If you would invest  1,879  in Capital One Financial on June 23, 2024 and sell it today you would earn a total of  205.00  from holding Capital One Financial or generate 10.91% return on investment over 90 days.

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

Microsoft  vs.  Capital One Financial

Microsoft

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsoft has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Microsoft is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Capital One Financial

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Capital One may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with Microsoft and Capital One

The main advantage of trading using opposite Microsoft and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft 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 Microsoft 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.