Correlation Between MidCap Financial and Gladstone Investment

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

By analyzing existing cross correlation between MidCap Financial Investment and Gladstone Investment, you can compare the effects of market volatilities on MidCap Financial and Gladstone Investment 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 MidCap Financial with a short position of Gladstone Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of MidCap Financial and Gladstone Investment.

Diversification Opportunities for MidCap Financial and Gladstone Investment

0.8

Correlation Coefficient

MidCap Financial  Gladstone Investment

Very poor diversification

The 3 months correlation between MidCap and Gladstone is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Gladstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gladstone Investment and MidCap Financial 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 MidCap Financial Investment are associated (or correlated) with Gladstone Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gladstone Investment has no effect on the direction of MidCap Financial i.e., MidCap Financial and Gladstone Investment go up and down completely randomly.

Pair Corralation between MidCap Financial and Gladstone Investment

Given the investment horizon of 90 days MidCap Financial Investment is expected to under-perform the Gladstone Investment. But the stock apears to be less risky and, when comparing its historical volatility, MidCap Financial Investment is 1.15 times less risky than Gladstone Investment. The stock trades about -0.07 of its potential returns per unit of risk. The Gladstone Investment is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,343  in Gladstone Investment on December 2, 2024 and sell it today you would earn a total of  42.00  from holding Gladstone Investment or generate 3.13% return on investment over 90 days.

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

MidCap Financial Investment  vs.  Gladstone Investment

MidCap Financial Inv

Risk-Adjusted Performance

Very Weak

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

Gladstone Investment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Investment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Gladstone Investment is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with MidCap Financial and Gladstone Investment

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

The idea behind MidCap Financial Investment and Gladstone Investment 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.