Correlation Between Arlington Asset and Capital One

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

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

Diversification Opportunities for Arlington Asset and Capital One

0.46

Correlation Coefficient

Arlington Asset  Capital One

Very weak diversification

The 3 months correlation between Arlington and Capital is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Arlington Asset Investment 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 Arlington Asset 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 Arlington Asset Investment 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 Arlington Asset i.e., Arlington Asset and Capital One go up and down completely randomly.

Pair Corralation between Arlington Asset and Capital One

If you would invest  14,055  in Capital One Financial on January 25, 2024 and sell it today you would earn a total of  735.00  from holding Capital One Financial or generate 5.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	4.55%
Values	Daily Returns

Arlington Asset Investment  vs.  Capital One Financial

Arlington Asset Inve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arlington Asset Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Arlington Asset is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Capital One Financial

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 9 (%) 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 May 2024.

Pair Trading with Arlington Asset and Capital One

The main advantage of trading using opposite Arlington Asset and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arlington Asset 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 Arlington Asset Investment 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.