Correlation Between NexPoint Real and Ready Capital

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

By analyzing existing cross correlation between NexPoint Real Estate and Ready Capital Corp, you can compare the effects of market volatilities on NexPoint Real and Ready 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 NexPoint Real with a short position of Ready Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of NexPoint Real and Ready Capital.

Diversification Opportunities for NexPoint Real and Ready Capital

-0.38

Correlation Coefficient

NexPoint Real  Ready Capital

Very good diversification

The 3 months correlation between NexPoint and Ready is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding NexPoint Real Estate and Ready Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ready Capital Corp and NexPoint Real 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 NexPoint Real Estate are associated (or correlated) with Ready Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ready Capital Corp has no effect on the direction of NexPoint Real i.e., NexPoint Real and Ready Capital go up and down completely randomly.

Pair Corralation between NexPoint Real and Ready Capital

Assuming the 90 days trading horizon NexPoint Real Estate is expected to under-perform the Ready Capital. But the preferred stock apears to be less risky and, when comparing its historical volatility, NexPoint Real Estate is 2.36 times less risky than Ready Capital. The preferred stock trades about -0.3 of its potential returns per unit of risk. The Ready Capital Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  738.00  in Ready Capital Corp on September 27, 2024 and sell it today you would earn a total of  1.00  from holding Ready Capital Corp or generate 0.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

NexPoint Real Estate  vs.  Ready Capital Corp

NexPoint Real Estate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NexPoint Real Estate has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NexPoint Real is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ready Capital Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NexPoint Real and Ready Capital

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

The idea behind NexPoint Real Estate and Ready Capital 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.