Correlation Between Carlyle and Starwood Property

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

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

Diversification Opportunities for Carlyle and Starwood Property

-0.56

Correlation Coefficient

Carlyle  Starwood Property

Excellent diversification

The 3 months correlation between Carlyle and Starwood is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Carlyle Group and Starwood Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starwood Property Trust and Carlyle 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 Carlyle Group are associated (or correlated) with Starwood Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starwood Property Trust has no effect on the direction of Carlyle i.e., Carlyle and Starwood Property go up and down completely randomly.

Pair Corralation between Carlyle and Starwood Property

Allowing for the 90-day total investment horizon Carlyle Group is expected to under-perform the Starwood Property. In addition to that, Carlyle is 2.49 times more volatile than Starwood Property Trust. It trades about -0.07 of its total potential returns per unit of risk. Starwood Property Trust is currently generating about 0.1 per unit of volatility. If you would invest  1,859  in Starwood Property Trust on January 1, 2025 and sell it today you would earn a total of  126.00  from holding Starwood Property Trust or generate 6.78% return on investment over 90 days.

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

Carlyle Group  vs.  Starwood Property Trust

Carlyle Group

Risk-Adjusted Performance

Very Weak

Over the last 90 days Carlyle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Starwood Property Trust

Risk-Adjusted Performance

OK

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

Pair Trading with Carlyle and Starwood Property

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

The idea behind Carlyle Group and Starwood Property Trust 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.