Correlation Between Duke Energy and Southern

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

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

Diversification Opportunities for Duke Energy and Southern

0.77

Correlation Coefficient

Duke Energy  Southern

Poor diversification

The 3 months correlation between Duke and Southern is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Duke Energy 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 Duke Energy are associated (or correlated) with Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of Duke Energy i.e., Duke Energy and Southern go up and down completely randomly.

Pair Corralation between Duke Energy and Southern

Considering the 90-day investment horizon Duke Energy is expected to generate 1.14 times less return on investment than Southern. In addition to that, Duke Energy is 1.11 times more volatile than Southern Company. It trades about 0.06 of its total potential returns per unit of risk. Southern Company is currently generating about 0.08 per unit of volatility. If you would invest  8,569  in Southern Company on August 30, 2024 and sell it today you would earn a total of  405.00  from holding Southern Company or generate 4.73% return on investment over 90 days.

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

Duke Energy  vs.  Southern Company

Duke Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Duke Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Duke Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Southern

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Duke Energy and Southern

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

The idea behind Duke Energy and Southern Company 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.