Correlation Between SLM Corp and Medallion Financial

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

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

Diversification Opportunities for SLM Corp and Medallion Financial

-0.5

Correlation Coefficient

SLM Corp  Medallion Financial

Very good diversification

The 3 months correlation between SLM and Medallion is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding SLM Corp Pb and Medallion Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Medallion Financial Corp and SLM Corp 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 SLM Corp Pb are associated (or correlated) with Medallion Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Medallion Financial Corp has no effect on the direction of SLM Corp i.e., SLM Corp and Medallion Financial go up and down completely randomly.

Pair Corralation between SLM Corp and Medallion Financial

Assuming the 90 days horizon SLM Corp is expected to generate 43.35 times less return on investment than Medallion Financial. But when comparing it to its historical volatility, SLM Corp Pb is 2.88 times less risky than Medallion Financial. It trades about 0.01 of its potential returns per unit of risk. Medallion Financial Corp is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  799.00  in Medallion Financial Corp on August 30, 2024 and sell it today you would earn a total of  143.00  from holding Medallion Financial Corp or generate 17.9% return on investment over 90 days.

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

SLM Corp Pb  vs.  Medallion Financial Corp

SLM Corp Pb

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SLM Corp Pb has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, SLM Corp is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Medallion Financial Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Medallion Financial Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent forward indicators, Medallion Financial displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SLM Corp and Medallion Financial

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

The idea behind SLM Corp Pb and Medallion Financial 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.