Correlation Between Main Street and Trinity Capital

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

Diversification Opportunities for Main Street and Trinity Capital

0.34

Correlation Coefficient

Main Street  Trinity Capital

Weak diversification

The 3 months correlation between Main and Trinity is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and Trinity Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trinity Capital 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 Trinity Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trinity Capital has no effect on the direction of Main Street i.e., Main Street and Trinity Capital go up and down completely randomly.

Pair Corralation between Main Street and Trinity Capital

Given the investment horizon of 90 days Main Street Capital is expected to generate 1.4 times more return on investment than Trinity Capital. However, Main Street is 1.4 times more volatile than Trinity Capital. It trades about -0.09 of its potential returns per unit of risk. Trinity Capital is currently generating about -0.14 per unit of risk. If you would invest  5,901  in Main Street Capital on December 28, 2024 and sell it today you would lose (235.00) from holding Main Street Capital or give up 3.98% of portfolio value over 90 days.

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

Main Street Capital  vs.  Trinity Capital

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.

Trinity Capital

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Trinity Capital are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Trinity Capital may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Main Street and Trinity Capital

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

The idea behind Main Street Capital and Trinity 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..