Correlation Between PennantPark Investment and Burford Capital

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

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

Diversification Opportunities for PennantPark Investment and Burford Capital

0.3

Correlation Coefficient

PennantPark Investment  Burford Capital

Weak diversification

The 3 months correlation between PennantPark and Burford is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding PennantPark Investment and Burford Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Burford Capital and PennantPark Investment 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 PennantPark Investment are associated (or correlated) with Burford Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Burford Capital has no effect on the direction of PennantPark Investment i.e., PennantPark Investment and Burford Capital go up and down completely randomly.

Pair Corralation between PennantPark Investment and Burford Capital

Given the investment horizon of 90 days PennantPark Investment is expected to generate 22.97 times less return on investment than Burford Capital. But when comparing it to its historical volatility, PennantPark Investment is 1.7 times less risky than Burford Capital. It trades about 0.0 of its potential returns per unit of risk. Burford Capital is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,292  in Burford Capital on September 5, 2024 and sell it today you would earn a total of  45.00  from holding Burford Capital or generate 3.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

PennantPark Investment  vs.  Burford Capital

PennantPark Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PennantPark Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, PennantPark Investment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Burford Capital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Burford Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Burford Capital is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with PennantPark Investment and Burford Capital

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

The idea behind PennantPark Investment and Burford 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.