Correlation Between Capital Southwest and Sixth Street

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

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

Diversification Opportunities for Capital Southwest and Sixth Street

0.28

Correlation Coefficient

Capital Southwest  Sixth Street

Modest diversification

The 3 months correlation between Capital and Sixth is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and Sixth Street Specialty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sixth Street Specialty 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 Sixth Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sixth Street Specialty has no effect on the direction of Capital Southwest i.e., Capital Southwest and Sixth Street go up and down completely randomly.

Pair Corralation between Capital Southwest and Sixth Street

Given the investment horizon of 90 days Capital Southwest is expected to generate 0.77 times more return on investment than Sixth Street. However, Capital Southwest is 1.29 times less risky than Sixth Street. It trades about 0.23 of its potential returns per unit of risk. Sixth Street Specialty is currently generating about 0.02 per unit of risk. If you would invest  2,496  in Capital Southwest on February 6, 2024 and sell it today you would earn a total of  121.00  from holding Capital Southwest or generate 4.85% return on investment over 90 days.

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

Capital Southwest  vs.  Sixth Street Specialty

Capital Southwest

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Capital Southwest may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Sixth Street Specialty

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sixth Street Specialty are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Sixth Street is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Capital Southwest and Sixth Street

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

The idea behind Capital Southwest and Sixth Street Specialty 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.