Correlation Between RMG Acquisition and Prospector Capital
Can any of the company-specific risk be diversified away by investing in both RMG Acquisition and Prospector 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 RMG Acquisition and Prospector Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RMG Acquisition Corp and Prospector Capital Equity, you can compare the effects of market volatilities on RMG Acquisition and Prospector 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 RMG Acquisition with a short position of Prospector Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of RMG Acquisition and Prospector Capital.
Diversification Opportunities for RMG Acquisition and Prospector Capital
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between RMG and Prospector is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding RMG Acquisition Corp and Prospector Capital Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prospector Capital Equity and RMG Acquisition 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 RMG Acquisition Corp are associated (or correlated) with Prospector Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prospector Capital Equity has no effect on the direction of RMG Acquisition i.e., RMG Acquisition and Prospector Capital go up and down completely randomly.
Pair Corralation between RMG Acquisition and Prospector Capital
Assuming the 90 days horizon RMG Acquisition is expected to generate 1.0 times less return on investment than Prospector Capital. In addition to that, RMG Acquisition is 1.09 times more volatile than Prospector Capital Equity. It trades about 0.12 of its total potential returns per unit of risk. Prospector Capital Equity is currently generating about 0.13 per unit of volatility. If you would invest 2.83 in Prospector Capital Equity on September 3, 2024 and sell it today you would earn a total of 7.17 from holding Prospector Capital Equity or generate 253.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 79.61% |
| Values | Daily Returns |
RMG Acquisition Corp vs. Prospector Capital Equity
Performance |
| Timeline |
| RMG Acquisition Corp |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
| Prospector Capital Equity |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Weak
RMG Acquisition and Prospector Capital Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RMG Acquisition and Prospector Capital
The main advantage of trading using opposite RMG Acquisition and Prospector Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RMG Acquisition position performs unexpectedly, Prospector 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 Prospector Capital will offset losses from the drop in Prospector Capital's long position.The idea behind RMG Acquisition Corp and Prospector Capital Equity 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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