Correlation Between Capital Southwest and Horizon Technology

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

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

Diversification Opportunities for Capital Southwest and Horizon Technology

0.93

Correlation Coefficient

Capital Southwest  Horizon Technology

Almost no diversification

The 3 months correlation between Capital and Horizon is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and Horizon Technology Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Horizon Technology 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 Horizon Technology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Horizon Technology has no effect on the direction of Capital Southwest i.e., Capital Southwest and Horizon Technology go up and down completely randomly.

Pair Corralation between Capital Southwest and Horizon Technology

Given the investment horizon of 90 days Capital Southwest is expected to generate 0.81 times more return on investment than Horizon Technology. However, Capital Southwest is 1.23 times less risky than Horizon Technology. It trades about 0.07 of its potential returns per unit of risk. Horizon Technology Finance is currently generating about 0.0 per unit of risk. If you would invest  1,396  in Capital Southwest on September 26, 2024 and sell it today you would earn a total of  742.00  from holding Capital Southwest or generate 53.15% return on investment over 90 days.

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

Capital Southwest  vs.  Horizon Technology Finance

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.

Horizon Technology

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Horizon Technology Finance has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Capital Southwest and Horizon Technology

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

The idea behind Capital Southwest and Horizon Technology Finance 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.