Correlation Between SiriusPoint and Prospect Capital

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

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

Diversification Opportunities for SiriusPoint and Prospect Capital

-0.17

Correlation Coefficient

SiriusPoint  Prospect Capital

Good diversification

The 3 months correlation between SiriusPoint and Prospect is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding SiriusPoint and Prospect Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospect Capital and SiriusPoint 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 SiriusPoint are associated (or correlated) with Prospect Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prospect Capital has no effect on the direction of SiriusPoint i.e., SiriusPoint and Prospect Capital go up and down completely randomly.

Pair Corralation between SiriusPoint and Prospect Capital

Assuming the 90 days trading horizon SiriusPoint is expected to generate 0.2 times more return on investment than Prospect Capital. However, SiriusPoint is 5.07 times less risky than Prospect Capital. It trades about 0.01 of its potential returns per unit of risk. Prospect Capital is currently generating about -0.1 per unit of risk. If you would invest  2,522  in SiriusPoint on November 28, 2024 and sell it today you would earn a total of  4.00  from holding SiriusPoint or generate 0.16% return on investment over 90 days.

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

SiriusPoint  vs.  Prospect Capital

SiriusPoint

Risk-Adjusted Performance

Very Weak

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

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. Despite latest unsteady performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with SiriusPoint and Prospect Capital

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

The idea behind SiriusPoint and Prospect 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.