Correlation Between Stepstone and Prospect Capital

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

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

Diversification Opportunities for Stepstone and Prospect Capital

-0.3

Correlation Coefficient

Stepstone  Prospect Capital

Very good diversification

The 3 months correlation between Stepstone and Prospect is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Stepstone Group and Prospect Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospect Capital and Stepstone 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 Stepstone 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 Stepstone i.e., Stepstone and Prospect Capital go up and down completely randomly.

Pair Corralation between Stepstone and Prospect Capital

Given the investment horizon of 90 days Stepstone Group is expected to generate 0.75 times more return on investment than Prospect Capital. However, Stepstone Group is 1.33 times less risky than Prospect Capital. It trades about 0.1 of its potential returns per unit of risk. Prospect Capital is currently generating about 0.07 per unit of risk. If you would invest  6,093  in Stepstone Group on August 19, 2025 and sell it today you would earn a total of  216.00  from holding Stepstone Group or generate 3.55% return on investment over 90 days.

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

Stepstone Group  vs.  Prospect Capital

Stepstone Group

Risk-Adjusted Performance

Mild

Compared to the overall equity markets, risk-adjusted returns on investments in Stepstone Group are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, Stepstone may actually be approaching a critical reversion point that can send shares even higher in December 2025.

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 rather sound technical and fundamental indicators, Prospect Capital is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Stepstone and Prospect Capital

The main advantage of trading using opposite Stepstone and Prospect Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stepstone 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 Stepstone 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.