Correlation Between Crown LNG and Southern Company

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

By analyzing existing cross correlation between Crown LNG Holdings and Southern Company Series, you can compare the effects of market volatilities on Crown LNG and Southern Company 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 Crown LNG with a short position of Southern Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Crown LNG and Southern Company.

Diversification Opportunities for Crown LNG and Southern Company

-0.4

Correlation Coefficient

Crown LNG  Southern Company

Very good diversification

The 3 months correlation between Crown and Southern is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Crown LNG Holdings and Southern Company Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Company and Crown LNG 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 Crown LNG Holdings are associated (or correlated) with Southern Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Company has no effect on the direction of Crown LNG i.e., Crown LNG and Southern Company go up and down completely randomly.

Pair Corralation between Crown LNG and Southern Company

Assuming the 90 days horizon Crown LNG Holdings is expected to under-perform the Southern Company. In addition to that, Crown LNG is 25.09 times more volatile than Southern Company Series. It trades about -0.05 of its total potential returns per unit of risk. Southern Company Series is currently generating about -0.04 per unit of volatility. If you would invest  1,865  in Southern Company Series on December 29, 2024 and sell it today you would lose (8.00) from holding Southern Company Series or give up 0.43% of portfolio value over 90 days.

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

Crown LNG Holdings  vs.  Southern Company Series

Crown LNG Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Crown LNG Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Crown LNG showed solid returns over the last few months and may actually be approaching a breakup point.

Southern Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company Series are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, Southern Company is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Crown LNG and Southern Company

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

The idea behind Crown LNG Holdings and Southern Company Series 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.