Correlation Between FTAC Emerald and Capital Southwest

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

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

Diversification Opportunities for FTAC Emerald and Capital Southwest

0.82

Correlation Coefficient

FTAC Emerald  Capital Southwest

Very poor diversification

The 3 months correlation between FTAC and Capital is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding FTAC Emerald Acquisition and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and FTAC Emerald 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 FTAC Emerald Acquisition 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 FTAC Emerald i.e., FTAC Emerald and Capital Southwest go up and down completely randomly.

Pair Corralation between FTAC Emerald and Capital Southwest

Assuming the 90 days horizon FTAC Emerald Acquisition is expected to under-perform the Capital Southwest. In addition to that, FTAC Emerald is 11.61 times more volatile than Capital Southwest. It trades about -0.28 of its total potential returns per unit of risk. Capital Southwest is currently generating about 0.02 per unit of volatility. If you would invest  2,569  in Capital Southwest on February 23, 2024 and sell it today you would earn a total of  7.00  from holding Capital Southwest or generate 0.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	60.87%
Values	Daily Returns

FTAC Emerald Acquisition  vs.  Capital Southwest

FTAC Emerald Acquisition

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FTAC Emerald Acquisition are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, FTAC Emerald showed solid returns over the last few months and may actually be approaching a breakup point.

Capital Southwest

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Capital Southwest may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with FTAC Emerald and Capital Southwest

The main advantage of trading using opposite FTAC Emerald and Capital Southwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FTAC Emerald 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 FTAC Emerald Acquisition 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.