Correlation Between Capital Southwest and Gladstone Investment

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

By analyzing existing cross correlation between Capital Southwest and Gladstone Investment, you can compare the effects of market volatilities on Capital Southwest and Gladstone Investment 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 Gladstone Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital Southwest and Gladstone Investment.

Diversification Opportunities for Capital Southwest and Gladstone Investment

0.43

Correlation Coefficient

Capital Southwest  Gladstone Investment

Very weak diversification

The 3 months correlation between Capital and Gladstone is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and Gladstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gladstone Investment 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 Gladstone Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gladstone Investment has no effect on the direction of Capital Southwest i.e., Capital Southwest and Gladstone Investment go up and down completely randomly.

Pair Corralation between Capital Southwest and Gladstone Investment

Given the investment horizon of 90 days Capital Southwest is expected to under-perform the Gladstone Investment. In addition to that, Capital Southwest is 1.03 times more volatile than Gladstone Investment. It trades about -0.15 of its total potential returns per unit of risk. Gladstone Investment is currently generating about 0.0 per unit of volatility. If you would invest  1,323  in Gladstone Investment on September 26, 2024 and sell it today you would lose (11.00) from holding Gladstone Investment or give up 0.83% of portfolio value over 90 days.

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

Capital Southwest  vs.  Gladstone Investment

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.

Gladstone Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gladstone Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Gladstone Investment is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Capital Southwest and Gladstone Investment

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

The idea behind Capital Southwest and Gladstone Investment 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.