Correlation Between Great Elm and Portman Ridge

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

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

Diversification Opportunities for Great Elm and Portman Ridge

0.53

Correlation Coefficient

Great Elm  Portman Ridge

Very weak diversification

The 3 months correlation between Great and Portman is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Great Elm Capital and Portman Ridge Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portman Ridge Finance and Great Elm 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 Great Elm Capital are associated (or correlated) with Portman Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portman Ridge Finance has no effect on the direction of Great Elm i.e., Great Elm and Portman Ridge go up and down completely randomly.

Pair Corralation between Great Elm and Portman Ridge

Given the investment horizon of 90 days Great Elm Capital is expected to generate 1.12 times more return on investment than Portman Ridge. However, Great Elm is 1.12 times more volatile than Portman Ridge Finance. It trades about -0.06 of its potential returns per unit of risk. Portman Ridge Finance is currently generating about -0.1 per unit of risk. If you would invest  1,057  in Great Elm Capital on December 28, 2024 and sell it today you would lose (55.00) from holding Great Elm Capital or give up 5.2% of portfolio value over 90 days.

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

Great Elm Capital  vs.  Portman Ridge Finance

Great Elm Capital

Risk-Adjusted Performance

Very Weak

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

Portman Ridge Finance

Risk-Adjusted Performance

Very Weak

Over the last 90 days Portman Ridge Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Great Elm and Portman Ridge

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

The idea behind Great Elm Capital and Portman Ridge Finance 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.