Correlation Between Prospect Capital and Gladstone Investment

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

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

Diversification Opportunities for Prospect Capital and Gladstone Investment

0.39

Correlation Coefficient

Prospect Capital  Gladstone Investment

Weak diversification

The 3 months correlation between Prospect and Gladstone is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Gladstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gladstone Investment 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 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 Prospect Capital i.e., Prospect Capital and Gladstone Investment go up and down completely randomly.

Pair Corralation between Prospect Capital and Gladstone Investment

Given the investment horizon of 90 days Prospect Capital is expected to under-perform the Gladstone Investment. In addition to that, Prospect Capital is 1.11 times more volatile than Gladstone Investment. It trades about -0.08 of its total potential returns per unit of risk. Gladstone Investment is currently generating about 0.03 per unit of volatility. If you would invest  1,342  in Gladstone Investment on November 28, 2024 and sell it today you would earn a total of  24.00  from holding Gladstone Investment or generate 1.79% 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.  Gladstone Investment

Prospect Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm 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 2 (%) 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 Prospect Capital and Gladstone Investment

The main advantage of trading using opposite Prospect Capital and Gladstone Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prospect Capital 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 Prospect Capital 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.

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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.