Correlation Between PRA and Capital One
Can any of the company-specific risk be diversified away by investing in both PRA 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 PRA and Capital One into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PRA Group and Capital One Financial, you can compare the effects of market volatilities on PRA 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 PRA with a short position of Capital One. Check out your portfolio center. Please also check ongoing floating volatility patterns of PRA and Capital One.
Diversification Opportunities for PRA and Capital One
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between PRA and Capital is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding PRA Group 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 PRA 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 PRA Group 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 PRA i.e., PRA and Capital One go up and down completely randomly.
Pair Corralation between PRA and Capital One
Given the investment horizon of 90 days PRA Group is expected to under-perform the Capital One. In addition to that, PRA is 1.91 times more volatile than Capital One Financial. It trades about -0.01 of its total potential returns per unit of risk. Capital One Financial is currently generating about 0.17 per unit of volatility. If you would invest 14,055 in Capital One Financial on January 25, 2024 and sell it today you would earn a total of 832.00 from holding Capital One Financial or generate 5.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PRA Group vs. Capital One Financial
Performance |
| Timeline |
| PRA Group |
| Capital One Financial |
PRA and Capital One Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PRA and Capital One
The main advantage of trading using opposite PRA and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PRA 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 PRA Group 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.| Capital One vs. Mastercard | Capital One vs. Visa Class A | Capital One vs. PayPal Holdings | Capital One vs. Ally Financial |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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