Correlation Between Prospect Capital and Newtek Business

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

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

Diversification Opportunities for Prospect Capital and Newtek Business

-0.4

Correlation Coefficient

Prospect Capital  Newtek Business

Very good diversification

The 3 months correlation between Prospect and Newtek is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Newtek Business Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Newtek Business Services and Prospect Capital 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 Prospect Capital are associated (or correlated) with Newtek Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Newtek Business Services has no effect on the direction of Prospect Capital i.e., Prospect Capital and Newtek Business go up and down completely randomly.

Pair Corralation between Prospect Capital and Newtek Business

Assuming the 90 days trading horizon Prospect Capital is expected to under-perform the Newtek Business. In addition to that, Prospect Capital is 4.06 times more volatile than Newtek Business Services. It trades about -0.31 of its total potential returns per unit of risk. Newtek Business Services is currently generating about -0.1 per unit of volatility. If you would invest  2,480  in Newtek Business Services on September 27, 2024 and sell it today you would lose (14.00) from holding Newtek Business Services or give up 0.56% of portfolio value over 90 days.

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

Prospect Capital  vs.  Newtek Business Services

Prospect Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Prospect Capital is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Newtek Business Services

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Newtek Business Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Newtek Business is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Prospect Capital and Newtek Business

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

The idea behind Prospect Capital and Newtek Business Services 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.