Correlation Between Prospect Capital and OFS Credit

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

By analyzing existing cross correlation between Prospect Capital and OFS Credit, you can compare the effects of market volatilities on Prospect Capital and OFS Credit 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 OFS Credit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prospect Capital and OFS Credit.

Diversification Opportunities for Prospect Capital and OFS Credit

0.27

Correlation Coefficient

Prospect Capital  OFS Credit

Modest diversification

The 3 months correlation between Prospect and OFS is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and OFS Credit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OFS Credit 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 OFS Credit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OFS Credit has no effect on the direction of Prospect Capital i.e., Prospect Capital and OFS Credit go up and down completely randomly.

Pair Corralation between Prospect Capital and OFS Credit

Assuming the 90 days trading horizon Prospect Capital is expected to generate 4.17 times more return on investment than OFS Credit. However, Prospect Capital is 4.17 times more volatile than OFS Credit. It trades about 0.07 of its potential returns per unit of risk. OFS Credit is currently generating about 0.11 per unit of risk. If you would invest  1,784  in Prospect Capital on August 30, 2024 and sell it today you would earn a total of  146.00  from holding Prospect Capital or generate 8.18% return on investment over 90 days.

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

Prospect Capital  vs.  OFS Credit

Prospect Capital

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Prospect Capital are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Prospect Capital may actually be approaching a critical reversion point that can send shares even higher in December 2024.

OFS Credit

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in OFS Credit are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, OFS Credit is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Prospect Capital and OFS Credit

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

The idea behind Prospect Capital and OFS Credit 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..