Correlation Between Ready Capital and NexPoint Diversified

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

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

Diversification Opportunities for Ready Capital and NexPoint Diversified

0.61

Correlation Coefficient

Ready Capital  NexPoint Diversified

Poor diversification

The 3 months correlation between Ready and NexPoint is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Ready Capital and NexPoint Diversified Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NexPoint Diversified Real and Ready 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 Ready Capital are associated (or correlated) with NexPoint Diversified. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NexPoint Diversified Real has no effect on the direction of Ready Capital i.e., Ready Capital and NexPoint Diversified go up and down completely randomly.

Pair Corralation between Ready Capital and NexPoint Diversified

Assuming the 90 days horizon Ready Capital is expected to under-perform the NexPoint Diversified. But the preferred stock apears to be less risky and, when comparing its historical volatility, Ready Capital is 2.46 times less risky than NexPoint Diversified. The preferred stock trades about -0.17 of its potential returns per unit of risk. The NexPoint Diversified Real is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,555  in NexPoint Diversified Real on December 30, 2024 and sell it today you would lose (80.00) from holding NexPoint Diversified Real or give up 5.14% of portfolio value over 90 days.

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

Ready Capital  vs.  NexPoint Diversified Real

Ready Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ready Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

NexPoint Diversified Real

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Ready Capital and NexPoint Diversified

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

The idea behind Ready Capital and NexPoint Diversified Real 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.