Correlation Between Prospect Capital and Capital Southwest
Can any of the company-specific risk be diversified away by investing in both Prospect Capital 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 Prospect Capital and Capital Southwest into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Prospect Capital and Capital Southwest, you can compare the effects of market volatilities on Prospect Capital 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 Prospect Capital with a short position of Capital Southwest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Prospect Capital and Capital Southwest.
Diversification Opportunities for Prospect Capital and Capital Southwest
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Prospect and Capital is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Prospect Capital and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and Prospect Capital 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 Prospect Capital 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 Prospect Capital i.e., Prospect Capital and Capital Southwest go up and down completely randomly.
Pair Corralation between Prospect Capital and Capital Southwest
Given the investment horizon of 90 days Prospect Capital is expected to under-perform the Capital Southwest. In addition to that, Prospect Capital is 1.74 times more volatile than Capital Southwest. It trades about -0.14 of its total potential returns per unit of risk. Capital Southwest is currently generating about -0.24 per unit of volatility. If you would invest 2,559 in Capital Southwest on August 24, 2024 and sell it today you would lose (262.00) from holding Capital Southwest or give up 10.24% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Prospect Capital vs. Capital Southwest
Performance |
| Timeline |
| Prospect Capital |
| Capital Southwest |
Prospect Capital and Capital Southwest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Prospect Capital and Capital Southwest
The main advantage of trading using opposite Prospect Capital and Capital Southwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Prospect Capital 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.| Prospect Capital vs. Gladstone Capital | Prospect Capital vs. Horizon Technology Finance | Prospect Capital vs. Gladstone Investment | Prospect Capital vs. Stellus Capital Investment |
| Capital Southwest vs. Oxford Lane Capital | Capital Southwest vs. XAI Octagon Floating | Capital Southwest vs. Cornerstone Strategic Return | Capital Southwest vs. Cornerstone Strategic Value |
Check out your portfolio center.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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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