Correlation Between Goldman Sachs and Prospect Capital

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

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

Diversification Opportunities for Goldman Sachs and Prospect Capital

0.35

Correlation Coefficient

Goldman Sachs  Prospect Capital

Weak diversification

The 3 months correlation between Goldman and Prospect is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Goldman Sachs Group and Prospect Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospect Capital and Goldman Sachs 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 Goldman Sachs Group are associated (or correlated) with Prospect Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prospect Capital has no effect on the direction of Goldman Sachs i.e., Goldman Sachs and Prospect Capital go up and down completely randomly.

Pair Corralation between Goldman Sachs and Prospect Capital

Allowing for the 90-day total investment horizon Goldman Sachs Group is expected to generate 1.13 times more return on investment than Prospect Capital. However, Goldman Sachs is 1.13 times more volatile than Prospect Capital. It trades about 0.22 of its potential returns per unit of risk. Prospect Capital is currently generating about 0.04 per unit of risk. If you would invest  38,772  in Goldman Sachs Group on February 22, 2024 and sell it today you would earn a total of  7,466  from holding Goldman Sachs Group or generate 19.26% return on investment over 90 days.

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

Goldman Sachs Group  vs.  Prospect Capital

Goldman Sachs Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Goldman Sachs Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Goldman Sachs unveiled solid returns over the last few months and may actually be approaching a breakup point.

Prospect Capital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Prospect Capital are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Prospect Capital is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Goldman Sachs and Prospect Capital

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

The idea behind Goldman Sachs Group and Prospect Capital 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.