Correlation Between Capital Southwest and WisdomTree

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

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

Diversification Opportunities for Capital Southwest and WisdomTree

0.98

Correlation Coefficient

Capital Southwest  WisdomTree

Almost no diversification

The 3 months correlation between Capital and WisdomTree is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and WisdomTree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree 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 WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree has no effect on the direction of Capital Southwest i.e., Capital Southwest and WisdomTree go up and down completely randomly.

Pair Corralation between Capital Southwest and WisdomTree

Given the investment horizon of 90 days Capital Southwest is expected to generate 2.34 times less return on investment than WisdomTree. But when comparing it to its historical volatility, Capital Southwest is 1.43 times less risky than WisdomTree. It trades about 0.26 of its potential returns per unit of risk. WisdomTree is currently generating about 0.43 of returns per unit of risk over similar time horizon. If you would invest  865.00  in WisdomTree on April 24, 2025 and sell it today you would earn a total of  469.00  from holding WisdomTree or generate 54.22% return on investment over 90 days.

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

Capital Southwest  vs.  WisdomTree

Capital Southwest

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 20 (%) 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.

WisdomTree

Risk-Adjusted Performance

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, WisdomTree unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Southwest and WisdomTree

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

The idea behind Capital Southwest and WisdomTree 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.