Correlation Between Capital Southwest and Carlyle Secured

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

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

Diversification Opportunities for Capital Southwest and Carlyle Secured

0.83

Correlation Coefficient

Capital Southwest  Carlyle Secured

Very poor diversification

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

Pair Corralation between Capital Southwest and Carlyle Secured

Given the investment horizon of 90 days Capital Southwest is expected to generate about the same return on investment as Carlyle Secured Lending. However, Capital Southwest is 1.08 times more volatile than Carlyle Secured Lending. It trades about 0.29 of its potential returns per unit of risk. Carlyle Secured Lending is currently producing about 0.32 per unit of risk. If you would invest  1,616  in Carlyle Secured Lending on February 4, 2024 and sell it today you would earn a total of  102.00  from holding Carlyle Secured Lending or generate 6.31% 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.  Carlyle Secured Lending

Capital Southwest

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Capital Southwest may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Carlyle Secured Lending

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Carlyle Secured Lending are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Carlyle Secured exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Southwest and Carlyle Secured

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

The idea behind Capital Southwest and Carlyle Secured Lending 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.