Correlation Between BlackRock TCP and Capital Southwest

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

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

Diversification Opportunities for BlackRock TCP and Capital Southwest

-0.65

Correlation Coefficient

BlackRock TCP  Capital Southwest

Excellent diversification

The 3 months correlation between BlackRock and Capital is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding BlackRock TCP Capital and Capital Southwest in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Southwest and BlackRock TCP 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 BlackRock TCP 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 BlackRock TCP i.e., BlackRock TCP and Capital Southwest go up and down completely randomly.

Pair Corralation between BlackRock TCP and Capital Southwest

Given the investment horizon of 90 days BlackRock TCP Capital is expected to under-perform the Capital Southwest. In addition to that, BlackRock TCP is 1.16 times more volatile than Capital Southwest. It trades about -0.02 of its total potential returns per unit of risk. Capital Southwest is currently generating about 0.07 per unit of volatility. If you would invest  1,495  in Capital Southwest on October 3, 2024 and sell it today you would earn a total of  687.00  from holding Capital Southwest or generate 45.95% return on investment over 90 days.

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

BlackRock TCP Capital  vs.  Capital Southwest

BlackRock TCP Capital

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BlackRock TCP Capital are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, BlackRock TCP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Capital Southwest

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Capital Southwest has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with BlackRock TCP and Capital Southwest

The main advantage of trading using opposite BlackRock TCP and Capital Southwest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BlackRock TCP 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 BlackRock TCP Capital 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.