Correlation Between Capital Southwest and European Equity

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

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

Diversification Opportunities for Capital Southwest and European Equity

0.75

Correlation Coefficient

Capital Southwest  European Equity

Poor diversification

The 3 months correlation between Capital and European is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and European Equity Closed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Equity Closed and Capital Southwest 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 Capital Southwest are associated (or correlated) with European Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Equity Closed has no effect on the direction of Capital Southwest i.e., Capital Southwest and European Equity go up and down completely randomly.

Pair Corralation between Capital Southwest and European Equity

Given the investment horizon of 90 days Capital Southwest is expected to under-perform the European Equity. In addition to that, Capital Southwest is 1.54 times more volatile than European Equity Closed. It trades about -0.1 of its total potential returns per unit of risk. European Equity Closed is currently generating about -0.11 per unit of volatility. If you would invest  923.00  in European Equity Closed on September 13, 2024 and sell it today you would lose (58.00) from holding European Equity Closed or give up 6.28% of portfolio value over 90 days.

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

Capital Southwest  vs.  European Equity Closed

Capital Southwest

Risk-Adjusted Performance

0 of 100

Very Weak

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

European Equity Closed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Equity Closed has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong technical and fundamental indicators, European Equity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital Southwest and European Equity

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

The idea behind Capital Southwest and European Equity Closed 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.