Correlation Between Two Harbors and Fidus Investment

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

By analyzing existing cross correlation between Two Harbors Investments and Fidus Investment Corp, you can compare the effects of market volatilities on Two Harbors and Fidus Investment 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 Two Harbors with a short position of Fidus Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Two Harbors and Fidus Investment.

Diversification Opportunities for Two Harbors and Fidus Investment

0.16

Correlation Coefficient

Two Harbors  Fidus Investment

Average diversification

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

Pair Corralation between Two Harbors and Fidus Investment

Assuming the 90 days trading horizon Two Harbors Investments is expected to under-perform the Fidus Investment. But the preferred stock apears to be less risky and, when comparing its historical volatility, Two Harbors Investments is 2.57 times less risky than Fidus Investment. The preferred stock trades about -0.01 of its potential returns per unit of risk. The Fidus Investment Corp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,028  in Fidus Investment Corp on December 19, 2024 and sell it today you would earn a total of  91.00  from holding Fidus Investment Corp or generate 4.49% return on investment over 90 days.

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

Two Harbors Investments  vs.  Fidus Investment Corp

Two Harbors Investments

Risk-Adjusted Performance

Very Weak

Over the last 90 days Two Harbors Investments has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Two Harbors is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Fidus Investment Corp

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fidus Investment Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Fidus Investment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Two Harbors and Fidus Investment

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

The idea behind Two Harbors Investments and Fidus Investment 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.