Correlation Between Main Street and Carlyle

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

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

Diversification Opportunities for Main Street and Carlyle

0.77

Correlation Coefficient

Main Street  Carlyle

Poor diversification

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

Pair Corralation between Main Street and Carlyle

Given the investment horizon of 90 days Main Street is expected to generate 1.14 times less return on investment than Carlyle. But when comparing it to its historical volatility, Main Street Capital is 2.32 times less risky than Carlyle. It trades about 0.13 of its potential returns per unit of risk. Carlyle Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2,780  in Carlyle Group on September 23, 2024 and sell it today you would earn a total of  2,242  from holding Carlyle Group or generate 80.65% return on investment over 90 days.

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

Main Street Capital  vs.  Carlyle Group

Main Street Capital

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street displayed solid returns over the last few months and may actually be approaching a breakup point.

Carlyle Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Carlyle Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Carlyle reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Main Street and Carlyle

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

The idea behind Main Street Capital and Carlyle Group 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.