Correlation Between BlackRock and Prospect Capital

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

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

Diversification Opportunities for BlackRock and Prospect Capital

-0.37

Correlation Coefficient

BlackRock  Prospect Capital

Very good diversification

The 3 months correlation between BlackRock and Prospect is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding BlackRock and Prospect Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospect Capital and BlackRock 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 BlackRock are associated (or correlated) with Prospect Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prospect Capital has no effect on the direction of BlackRock i.e., BlackRock and Prospect Capital go up and down completely randomly.

Pair Corralation between BlackRock and Prospect Capital

Considering the 90-day investment horizon BlackRock is expected to generate 0.62 times more return on investment than Prospect Capital. However, BlackRock is 1.62 times less risky than Prospect Capital. It trades about 0.11 of its potential returns per unit of risk. Prospect Capital is currently generating about 0.04 per unit of risk. If you would invest  73,486  in BlackRock on October 5, 2024 and sell it today you would earn a total of  28,254  from holding BlackRock or generate 38.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.63%
Values	Daily Returns

BlackRock  vs.  Prospect Capital

BlackRock

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, BlackRock may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Prospect Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with BlackRock and Prospect Capital

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

The idea behind BlackRock and Prospect Capital 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.