Correlation Between TC Energy and Main Street

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

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

Diversification Opportunities for TC Energy and Main Street

0.54

Correlation Coefficient

TC Energy  Main Street

Very weak diversification

The 3 months correlation between TRP and Main is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding TC Energy Corp and Main Street Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Main Street Capital and TC Energy 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 TC Energy Corp are associated (or correlated) with Main Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Main Street Capital has no effect on the direction of TC Energy i.e., TC Energy and Main Street go up and down completely randomly.

Pair Corralation between TC Energy and Main Street

Considering the 90-day investment horizon TC Energy is expected to generate 1.7 times less return on investment than Main Street. In addition to that, TC Energy is 1.65 times more volatile than Main Street Capital. It trades about 0.11 of its total potential returns per unit of risk. Main Street Capital is currently generating about 0.32 per unit of volatility. If you would invest  4,884  in Main Street Capital on September 22, 2024 and sell it today you would earn a total of  756.00  from holding Main Street Capital or generate 15.48% return on investment over 90 days.

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

TC Energy Corp  vs.  Main Street Capital

TC Energy Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TC Energy Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, TC Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Main Street Capital

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TC Energy and Main Street

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

The idea behind TC Energy Corp and Main Street 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.