Correlation Between Eagle Point and Capital Southwest

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

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

Diversification Opportunities for Eagle Point and Capital Southwest

0.01

Correlation Coefficient

Eagle Point  Capital Southwest

Significant diversification

The 3 months correlation between Eagle and Capital is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Eagle Point Credit and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and Eagle Point 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 Eagle Point Credit 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 Eagle Point i.e., Eagle Point and Capital Southwest go up and down completely randomly.

Pair Corralation between Eagle Point and Capital Southwest

Considering the 90-day investment horizon Eagle Point Credit is expected to under-perform the Capital Southwest. In addition to that, Eagle Point is 1.05 times more volatile than Capital Southwest. It trades about -0.04 of its total potential returns per unit of risk. Capital Southwest is currently generating about 0.12 per unit of volatility. 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	Insignificant
Accuracy	100.0%
Values	Daily Returns

Eagle Point Credit  vs.  Capital Southwest

Eagle Point Credit

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eagle Point Credit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Eagle Point is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

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.

Pair Trading with Eagle Point and Capital Southwest

The main advantage of trading using opposite Eagle Point and Capital Southwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Eagle Point 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 Eagle Point Credit 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.