Correlation Between Stepstone and Rand Capital

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

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

Diversification Opportunities for Stepstone and Rand Capital

-0.02

Correlation Coefficient

Stepstone  Rand Capital

Good diversification

The 3 months correlation between Stepstone and Rand is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Rand Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rand Capital Corp and Stepstone 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 Stepstone Group are associated (or correlated) with Rand Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rand Capital Corp has no effect on the direction of Stepstone i.e., Stepstone and Rand Capital go up and down completely randomly.

Pair Corralation between Stepstone and Rand Capital

Given the investment horizon of 90 days Stepstone is expected to generate 2.5 times less return on investment than Rand Capital. But when comparing it to its historical volatility, Stepstone Group is 1.25 times less risky than Rand Capital. It trades about 0.1 of its potential returns per unit of risk. Rand Capital Corp is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,647  in Rand Capital Corp on September 17, 2024 and sell it today you would earn a total of  633.00  from holding Rand Capital Corp or generate 38.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Stepstone Group  vs.  Rand Capital Corp

Stepstone Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Stepstone reported solid returns over the last few months and may actually be approaching a breakup point.

Rand Capital Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rand Capital Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Rand Capital exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Stepstone and Rand Capital

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

The idea behind Stepstone Group and Rand Capital Corp 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.