Correlation Between DIVERSIFIED ROYALTY and SLR Investment

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

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

Diversification Opportunities for DIVERSIFIED ROYALTY and SLR Investment

0.31

Correlation Coefficient

DIVERSIFIED ROYALTY  SLR Investment

Weak diversification

The 3 months correlation between DIVERSIFIED and SLR is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding DIVERSIFIED ROYALTY and SLR Investment Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SLR Investment Corp and DIVERSIFIED ROYALTY 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 DIVERSIFIED ROYALTY are associated (or correlated) with SLR Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SLR Investment Corp has no effect on the direction of DIVERSIFIED ROYALTY i.e., DIVERSIFIED ROYALTY and SLR Investment go up and down completely randomly.

Pair Corralation between DIVERSIFIED ROYALTY and SLR Investment

Assuming the 90 days horizon DIVERSIFIED ROYALTY is expected to under-perform the SLR Investment. In addition to that, DIVERSIFIED ROYALTY is 1.73 times more volatile than SLR Investment Corp. It trades about -0.07 of its total potential returns per unit of risk. SLR Investment Corp is currently generating about 0.04 per unit of volatility. If you would invest  1,530  in SLR Investment Corp on September 28, 2024 and sell it today you would earn a total of  12.00  from holding SLR Investment Corp or generate 0.78% return on investment over 90 days.

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

DIVERSIFIED ROYALTY  vs.  SLR Investment Corp

DIVERSIFIED ROYALTY

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DIVERSIFIED ROYALTY are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, DIVERSIFIED ROYALTY is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

SLR Investment Corp

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SLR Investment Corp are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SLR Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DIVERSIFIED ROYALTY and SLR Investment

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

The idea behind DIVERSIFIED ROYALTY and SLR 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.