Correlation Between Ellsworth Convertible and Capital Southwest

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

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

Diversification Opportunities for Ellsworth Convertible and Capital Southwest

-0.69

Correlation Coefficient

Ellsworth Convertible  Capital Southwest

Excellent diversification

The 3 months correlation between Ellsworth and Capital is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Ellsworth Convertible Growth and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and Ellsworth Convertible 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 Ellsworth Convertible Growth are associated (or correlated) with Capital Southwest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Southwest has no effect on the direction of Ellsworth Convertible i.e., Ellsworth Convertible and Capital Southwest go up and down completely randomly.

Pair Corralation between Ellsworth Convertible and Capital Southwest

Considering the 90-day investment horizon Ellsworth Convertible Growth is expected to generate 0.58 times more return on investment than Capital Southwest. However, Ellsworth Convertible Growth is 1.74 times less risky than Capital Southwest. It trades about 0.28 of its potential returns per unit of risk. Capital Southwest is currently generating about -0.09 per unit of risk. If you would invest  857.00  in Ellsworth Convertible Growth on September 12, 2024 and sell it today you would earn a total of  126.00  from holding Ellsworth Convertible Growth or generate 14.7% return on investment over 90 days.

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

Ellsworth Convertible Growth  vs.  Capital Southwest

Ellsworth Convertible

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ellsworth Convertible Growth are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Ellsworth Convertible reported solid returns over the last few months and may actually be approaching a breakup point.

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 uncertain 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.

Pair Trading with Ellsworth Convertible and Capital Southwest

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

The idea behind Ellsworth Convertible Growth and Capital Southwest 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.