Correlation Between Cornerstone Strategic and Capital Southwest

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

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

Diversification Opportunities for Cornerstone Strategic and Capital Southwest

0.04

Correlation Coefficient

Cornerstone Strategic  Capital Southwest

Significant diversification

The 3 months correlation between Cornerstone and Capital is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Cornerstone Strategic Value and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and Cornerstone Strategic 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 Cornerstone Strategic Value 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 Cornerstone Strategic i.e., Cornerstone Strategic and Capital Southwest go up and down completely randomly.

Pair Corralation between Cornerstone Strategic and Capital Southwest

Considering the 90-day investment horizon Cornerstone Strategic Value is expected to under-perform the Capital Southwest. In addition to that, Cornerstone Strategic is 1.43 times more volatile than Capital Southwest. It trades about -0.1 of its total potential returns per unit of risk. Capital Southwest is currently generating about 0.09 per unit of volatility. If you would invest  2,116  in Capital Southwest on December 30, 2024 and sell it today you would earn a total of  121.00  from holding Capital Southwest or generate 5.72% return on investment over 90 days.

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

Cornerstone Strategic Value  vs.  Capital Southwest

Cornerstone Strategic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cornerstone Strategic Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's essential indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the fund investors.

Capital Southwest

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Capital Southwest is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Cornerstone Strategic and Capital Southwest

The main advantage of trading using opposite Cornerstone Strategic and Capital Southwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cornerstone Strategic 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 Cornerstone Strategic Value 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 Stocks Directory module to find actively traded stocks across global markets.