Correlation Between Capital Southwest and New Mountain

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

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

Diversification Opportunities for Capital Southwest and New Mountain

0.76

Correlation Coefficient

Capital Southwest  New Mountain

Poor diversification

The 3 months correlation between Capital and New is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and New Mountain Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Mountain Finance 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 New Mountain. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Mountain Finance has no effect on the direction of Capital Southwest i.e., Capital Southwest and New Mountain go up and down completely randomly.

Pair Corralation between Capital Southwest and New Mountain

Given the investment horizon of 90 days Capital Southwest is expected to generate 1.11 times more return on investment than New Mountain. However, Capital Southwest is 1.11 times more volatile than New Mountain Finance. It trades about 0.22 of its potential returns per unit of risk. New Mountain Finance is currently generating about 0.16 per unit of risk. If you would invest  1,932  in Capital Southwest on May 4, 2025 and sell it today you would earn a total of  317.00  from holding Capital Southwest or generate 16.41% return on investment over 90 days.

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

Capital Southwest  vs.  New Mountain Finance

Capital Southwest

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 17 (%) 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.

New Mountain Finance

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Mountain Finance are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, New Mountain may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Pair Trading with Capital Southwest and New Mountain

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

The idea behind Capital Southwest and New Mountain Finance 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.