Correlation Between Main Street and LTC Properties

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

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

Diversification Opportunities for Main Street and LTC Properties

0.57

Correlation Coefficient

Main Street  LTC Properties

Very weak diversification

The 3 months correlation between Main and LTC is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and LTC Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LTC Properties and Main Street 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 Main Street Capital are associated (or correlated) with LTC Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LTC Properties has no effect on the direction of Main Street i.e., Main Street and LTC Properties go up and down completely randomly.

Pair Corralation between Main Street and LTC Properties

Given the investment horizon of 90 days Main Street Capital is expected to generate 0.54 times more return on investment than LTC Properties. However, Main Street Capital is 1.85 times less risky than LTC Properties. It trades about 0.3 of its potential returns per unit of risk. LTC Properties is currently generating about 0.1 per unit of risk. If you would invest  4,857  in Main Street Capital on September 2, 2024 and sell it today you would earn a total of  690.00  from holding Main Street Capital or generate 14.21% return on investment over 90 days.

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

Main Street Capital  vs.  LTC Properties

Main Street Capital

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street displayed solid returns over the last few months and may actually be approaching a breakup point.

LTC Properties

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LTC Properties are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, LTC Properties may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Main Street and LTC Properties

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

The idea behind Main Street Capital and LTC Properties 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.