Correlation Between Capital Southwest and Lipocine

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

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

Diversification Opportunities for Capital Southwest and Lipocine

0.63

Correlation Coefficient

Capital Southwest  Lipocine

Poor diversification

The 3 months correlation between Capital and Lipocine is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Capital Southwest and Lipocine in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lipocine 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 Lipocine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lipocine has no effect on the direction of Capital Southwest i.e., Capital Southwest and Lipocine go up and down completely randomly.

Pair Corralation between Capital Southwest and Lipocine

Assuming the 90 days horizon Capital Southwest is expected to generate 0.06 times more return on investment than Lipocine. However, Capital Southwest is 17.59 times less risky than Lipocine. It trades about 0.03 of its potential returns per unit of risk. Lipocine is currently generating about -0.08 per unit of risk. If you would invest  2,564  in Capital Southwest on August 20, 2024 and sell it today you would earn a total of  5.00  from holding Capital Southwest or generate 0.2% 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.  Lipocine

Capital Southwest

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Southwest are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Capital Southwest is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Lipocine

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lipocine are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Lipocine displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Capital Southwest and Lipocine

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

The idea behind Capital Southwest and Lipocine 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.