Correlation Between Stellus Capital and MidCap Financial

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

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

Diversification Opportunities for Stellus Capital and MidCap Financial

0.16

Correlation Coefficient

Stellus Capital  MidCap Financial

Average diversification

The 3 months correlation between Stellus and MidCap is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Stellus Capital Investment and MidCap Financial Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MidCap Financial Inv and Stellus 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 Stellus Capital Investment are associated (or correlated) with MidCap Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MidCap Financial Inv has no effect on the direction of Stellus Capital i.e., Stellus Capital and MidCap Financial go up and down completely randomly.

Pair Corralation between Stellus Capital and MidCap Financial

Considering the 90-day investment horizon Stellus Capital is expected to generate 1.42 times less return on investment than MidCap Financial. But when comparing it to its historical volatility, Stellus Capital Investment is 1.06 times less risky than MidCap Financial. It trades about 0.06 of its potential returns per unit of risk. MidCap Financial Investment is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  889.00  in MidCap Financial Investment on September 12, 2024 and sell it today you would earn a total of  478.50  from holding MidCap Financial Investment or generate 53.82% return on investment over 90 days.

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

Stellus Capital Investment  vs.  MidCap Financial Investment

Stellus Capital Inve

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stellus Capital Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Stellus Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

MidCap Financial Inv

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MidCap Financial Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, MidCap Financial is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Stellus Capital and MidCap Financial

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

The idea behind Stellus Capital Investment and MidCap Financial 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.