Correlation Between Fidus Investment and Main Street

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

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

Diversification Opportunities for Fidus Investment and Main Street

0.77

Correlation Coefficient

Fidus Investment  Main Street

Poor diversification

The 3 months correlation between Fidus and Main is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Fidus Investment Corp and Main Street Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Capital and Fidus Investment 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 Fidus Investment Corp are associated (or correlated) with Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Capital has no effect on the direction of Fidus Investment i.e., Fidus Investment and Main Street go up and down completely randomly.

Pair Corralation between Fidus Investment and Main Street

Given the investment horizon of 90 days Fidus Investment Corp is expected to generate 0.68 times more return on investment than Main Street. However, Fidus Investment Corp is 1.46 times less risky than Main Street. It trades about 0.06 of its potential returns per unit of risk. Main Street Capital is currently generating about 0.03 per unit of risk. If you would invest  2,033  in Fidus Investment Corp on December 27, 2024 and sell it today you would earn a total of  63.00  from holding Fidus Investment Corp or generate 3.1% return on investment over 90 days.

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

Fidus Investment Corp  vs.  Main Street Capital

Fidus Investment Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fidus Investment Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fidus Investment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Main Street Capital

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Main Street is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fidus Investment and Main Street

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

The idea behind Fidus Investment Corp and Main Street 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.