Correlation Between Capital Southwest and OFS Capital

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

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

Diversification Opportunities for Capital Southwest and OFS Capital

0.52

Correlation Coefficient

Capital Southwest  OFS Capital

Very weak diversification

The 3 months correlation between Capital and OFS is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and OFS Capital Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OFS Capital Corp 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 OFS Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OFS Capital Corp has no effect on the direction of Capital Southwest i.e., Capital Southwest and OFS Capital go up and down completely randomly.

Pair Corralation between Capital Southwest and OFS Capital

Given the investment horizon of 90 days Capital Southwest is expected to generate 0.7 times more return on investment than OFS Capital. However, Capital Southwest is 1.43 times less risky than OFS Capital. It trades about 0.19 of its potential returns per unit of risk. OFS Capital Corp is currently generating about 0.02 per unit of risk. If you would invest  2,032  in Capital Southwest on May 13, 2025 and sell it today you would earn a total of  253.00  from holding Capital Southwest or generate 12.45% return on investment over 90 days.

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

Capital Southwest  vs.  OFS Capital Corp

Capital Southwest

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 14 (%) 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 September 2025.

OFS Capital Corp

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in OFS Capital Corp are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, OFS Capital is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Capital Southwest and OFS Capital

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

The idea behind Capital Southwest and OFS Capital Corp 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 Transaction History module to view history of all your transactions and understand their impact on performance.