Correlation Between PayPal Holdings and Capital One

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

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

Diversification Opportunities for PayPal Holdings and Capital One

0.44

Correlation Coefficient

PayPal Holdings  Capital One

Very weak diversification

The 3 months correlation between PayPal and Capital is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings 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 PayPal Holdings i.e., PayPal Holdings and Capital One go up and down completely randomly.

Pair Corralation between PayPal Holdings and Capital One

Given the investment horizon of 90 days PayPal Holdings is expected to generate 2.67 times less return on investment than Capital One. In addition to that, PayPal Holdings is 1.7 times more volatile than Capital One Financial. It trades about 0.02 of its total potential returns per unit of risk. Capital One Financial is currently generating about 0.11 per unit of volatility. If you would invest  12,437  in Capital One Financial on January 18, 2024 and sell it today you would earn a total of  1,240  from holding Capital One Financial or generate 9.97% return on investment over 90 days.

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

PayPal Holdings  vs.  Capital One Financial

PayPal Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PayPal Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, PayPal Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Capital One Financial

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital One Financial are ranked lower than 8 (%) 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 PayPal Holdings and Capital One

The main advantage of trading using opposite PayPal Holdings and Capital One positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PayPal Holdings 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 PayPal Holdings 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.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.