Correlation Between MidCap Financial and Prospect Capital

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

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

Diversification Opportunities for MidCap Financial and Prospect Capital

0.15

Correlation Coefficient

MidCap Financial  Prospect Capital

Average diversification

The 3 months correlation between MidCap and Prospect is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding MidCap Financial Investment and Prospect Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospect Capital and MidCap Financial 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 MidCap Financial Investment 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 MidCap Financial i.e., MidCap Financial and Prospect Capital go up and down completely randomly.

Pair Corralation between MidCap Financial and Prospect Capital

Given the investment horizon of 90 days MidCap Financial Investment is expected to generate 0.57 times more return on investment than Prospect Capital. However, MidCap Financial Investment is 1.75 times less risky than Prospect Capital. It trades about -0.07 of its potential returns per unit of risk. Prospect Capital is currently generating about -0.05 per unit of risk. If you would invest  1,283  in MidCap Financial Investment on August 29, 2025 and sell it today you would lose (72.00) from holding MidCap Financial Investment or give up 5.61% of portfolio value over 90 days.

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

MidCap Financial Investment  vs.  Prospect Capital

MidCap Financial Inv

Risk-Adjusted Performance

Weakest

Over the last 90 days MidCap Financial Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, MidCap Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Prospect Capital

Risk-Adjusted Performance

Weakest

Over the last 90 days Prospect Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with MidCap Financial and Prospect Capital

The main advantage of trading using opposite MidCap Financial and Prospect Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MidCap Financial 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 MidCap Financial Investment 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.