Correlation Between Entergy Mississippi and Southern

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

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

Diversification Opportunities for Entergy Mississippi and Southern

0.54

Correlation Coefficient

Entergy Mississippi  Southern

Very weak diversification

The 3 months correlation between Entergy and Southern is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Mississippi LLC and Southern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Entergy Mississippi 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 Entergy Mississippi LLC 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 Entergy Mississippi i.e., Entergy Mississippi and Southern go up and down completely randomly.

Pair Corralation between Entergy Mississippi and Southern

Considering the 90-day investment horizon Entergy Mississippi LLC is expected to under-perform the Southern. In addition to that, Entergy Mississippi is 1.09 times more volatile than Southern Co. It trades about -0.06 of its total potential returns per unit of risk. Southern Co is currently generating about 0.0 per unit of volatility. If you would invest  2,168  in Southern Co on December 30, 2024 and sell it today you would lose (5.00) from holding Southern Co or give up 0.23% of portfolio value over 90 days.

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

Entergy Mississippi LLC  vs.  Southern Co

Entergy Mississippi LLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Entergy Mississippi LLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable primary indicators, Entergy Mississippi is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Southern

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Southern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Entergy Mississippi and Southern

The main advantage of trading using opposite Entergy Mississippi and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy Mississippi 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 Entergy Mississippi LLC and Southern Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.