Correlation Between Horizon Technology and Prospect Capital

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

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

Diversification Opportunities for Horizon Technology and Prospect Capital

0.64

Correlation Coefficient

Horizon Technology  Prospect Capital

Poor diversification

The 3 months correlation between Horizon and Prospect is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Horizon Technology Finance and Prospect Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospect Capital and Horizon Technology 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 Horizon Technology Finance 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 Horizon Technology i.e., Horizon Technology and Prospect Capital go up and down completely randomly.

Pair Corralation between Horizon Technology and Prospect Capital

Given the investment horizon of 90 days Horizon Technology Finance is expected to generate 1.77 times more return on investment than Prospect Capital. However, Horizon Technology is 1.77 times more volatile than Prospect Capital. It trades about 0.1 of its potential returns per unit of risk. Prospect Capital is currently generating about 0.0 per unit of risk. If you would invest  858.00  in Horizon Technology Finance on December 30, 2024 and sell it today you would earn a total of  84.00  from holding Horizon Technology Finance or generate 9.79% return on investment over 90 days.

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

Horizon Technology Finance  vs.  Prospect Capital

Horizon Technology

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Horizon Technology Finance are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Horizon Technology may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Prospect Capital

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Horizon Technology and Prospect Capital

The main advantage of trading using opposite Horizon Technology and Prospect Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Horizon Technology 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 Horizon Technology Finance 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.

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