Correlation Between Deutsche Bank and Capital Southwest

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

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

Diversification Opportunities for Deutsche Bank and Capital Southwest

0.76

Correlation Coefficient

Deutsche Bank  Capital Southwest

Poor diversification

The 3 months correlation between Deutsche and Capital is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Bank AG and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and Deutsche Bank 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 Deutsche Bank AG 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 Deutsche Bank i.e., Deutsche Bank and Capital Southwest go up and down completely randomly.

Pair Corralation between Deutsche Bank and Capital Southwest

Allowing for the 90-day total investment horizon Deutsche Bank is expected to generate 1.08 times less return on investment than Capital Southwest. In addition to that, Deutsche Bank is 2.07 times more volatile than Capital Southwest. It trades about 0.06 of its total potential returns per unit of risk. Capital Southwest is currently generating about 0.14 per unit of volatility. If you would invest  2,325  in Capital Southwest on March 19, 2024 and sell it today you would earn a total of  208.00  from holding Capital Southwest or generate 8.95% return on investment over 90 days.

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

Deutsche Bank AG  vs.  Capital Southwest

Deutsche Bank AG

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Bank AG are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Deutsche Bank may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Capital Southwest

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 11 (%) 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 July 2024.

Pair Trading with Deutsche Bank and Capital Southwest

The main advantage of trading using opposite Deutsche Bank and Capital Southwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche Bank 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 Deutsche Bank AG 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 Commodity Directory module to find actively traded commodities issued by global exchanges.