Correlation Between Regional Management and Main Street

Can any of the company-specific risk be diversified away by investing in both Regional Management and Main Street 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 Regional Management and Main Street into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Regional Management and Main Street

0.75

Correlation Coefficient

Regional Management  Main Street

Poor diversification

The 3 months correlation between Regional and Main is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Regional Management Corp and Main Street Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Capital and Regional Management 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 Regional Management Corp are associated (or correlated) with Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Capital has no effect on the direction of Regional Management i.e., Regional Management and Main Street go up and down completely randomly.

Pair Corralation between Regional Management and Main Street

Allowing for the 90-day total investment horizon Regional Management Corp is expected to under-perform the Main Street. In addition to that, Regional Management is 1.47 times more volatile than Main Street Capital. It trades about -0.03 of its total potential returns per unit of risk. Main Street Capital is currently generating about 0.02 per unit of volatility. If you would invest  5,699  in Main Street Capital on December 28, 2024 and sell it today you would earn a total of  48.00  from holding Main Street Capital or generate 0.84% return on investment over 90 days.

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

Regional Management Corp  vs.  Main Street Capital

Regional Management Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Regional Management Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Regional Management is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Main Street Capital

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Main Street is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Regional Management and Main Street

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

The idea behind Regional Management Corp and Main Street 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.