Correlation Between Capital Southwest and MFS High

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

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

Diversification Opportunities for Capital Southwest and MFS High

-0.17

Correlation Coefficient

Capital Southwest  MFS High

Good diversification

The 3 months correlation between Capital and MFS is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and MFS High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MFS High Yield 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 MFS High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MFS High Yield has no effect on the direction of Capital Southwest i.e., Capital Southwest and MFS High go up and down completely randomly.

Pair Corralation between Capital Southwest and MFS High

Given the investment horizon of 90 days Capital Southwest is expected to generate 2.43 times more return on investment than MFS High. However, Capital Southwest is 2.43 times more volatile than MFS High Yield. It trades about 0.28 of its potential returns per unit of risk. MFS High Yield is currently generating about -0.01 per unit of risk. If you would invest  1,891  in Capital Southwest on April 23, 2025 and sell it today you would earn a total of  413.50  from holding Capital Southwest or generate 21.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Capital Southwest  vs.  MFS High Yield

Capital Southwest

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Capital Southwest exhibited solid returns over the last few months and may actually be approaching a breakup point.

MFS High Yield

Risk-Adjusted Performance

Very Weak

Over the last 90 days MFS High Yield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable primary indicators, MFS High is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Capital Southwest and MFS High

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

The idea behind Capital Southwest and MFS High Yield 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.