Correlation Between Main Street and Horizon Technology

Can any of the company-specific risk be diversified away by investing in both Main Street and Horizon Technology 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 Horizon Technology 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 Horizon Technology Finance, you can compare the effects of market volatilities on Main Street and Horizon Technology 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 Horizon Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of Main Street and Horizon Technology.

Diversification Opportunities for Main Street and Horizon Technology

0.58

Correlation Coefficient

Main Street  Horizon Technology

Very weak diversification

The 3 months correlation between Main and Horizon is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and Horizon Technology Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Technology 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 Horizon Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Technology has no effect on the direction of Main Street i.e., Main Street and Horizon Technology go up and down completely randomly.

Pair Corralation between Main Street and Horizon Technology

Given the investment horizon of 90 days Main Street Capital is expected to under-perform the Horizon Technology. But the stock apears to be less risky and, when comparing its historical volatility, Main Street Capital is 1.25 times less risky than Horizon Technology. The stock trades about 0.0 of its potential returns per unit of risk. The Horizon Technology Finance is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  858.00  in Horizon Technology Finance on December 28, 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	Weak
Accuracy	100.0%
Values	Daily Returns

Main Street Capital  vs.  Horizon Technology Finance

Main Street Capital

Risk-Adjusted Performance

Weak

Over the last 90 days Main Street Capital has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Horizon Technology

Risk-Adjusted Performance

Modest

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.

Pair Trading with Main Street and Horizon Technology

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

The idea behind Main Street Capital and Horizon Technology 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.