Correlation Between Capital Southwest and Pimco Income

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

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

Diversification Opportunities for Capital Southwest and Pimco Income

0.83

Correlation Coefficient

Capital Southwest  Pimco Income

Very poor diversification

The 3 months correlation between Capital and Pimco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and Pimco Income Strategy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pimco Income Strategy 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 Pimco Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pimco Income Strategy has no effect on the direction of Capital Southwest i.e., Capital Southwest and Pimco Income go up and down completely randomly.

Pair Corralation between Capital Southwest and Pimco Income

Given the investment horizon of 90 days Capital Southwest is expected to generate 3.68 times more return on investment than Pimco Income. However, Capital Southwest is 3.68 times more volatile than Pimco Income Strategy. It trades about 0.12 of its potential returns per unit of risk. Pimco Income Strategy is currently generating about 0.26 per unit of risk. If you would invest  2,116  in Capital Southwest on December 28, 2024 and sell it today you would earn a total of  150.00  from holding Capital Southwest or generate 7.09% return on investment over 90 days.

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

Capital Southwest  vs.  Pimco Income Strategy

Capital Southwest

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Capital Southwest may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pimco Income Strategy

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pimco Income Strategy are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Pimco Income is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Capital Southwest and Pimco Income

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

The idea behind Capital Southwest and Pimco Income Strategy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.