Correlation Between Globe Life and Southern Company

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

By analyzing existing cross correlation between Globe Life 425 and Southern Company Series, you can compare the effects of market volatilities on Globe Life 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 Globe Life with a short position of Southern Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of Globe Life and Southern Company.

Diversification Opportunities for Globe Life and Southern Company

0.88

Correlation Coefficient

Globe Life  Southern Company

Very poor diversification

The 3 months correlation between Globe and Southern is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Globe Life 425 and Southern Company Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Company and Globe Life 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 Globe Life 425 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 Globe Life i.e., Globe Life and Southern Company go up and down completely randomly.

Pair Corralation between Globe Life and Southern Company

Assuming the 90 days horizon Globe Life 425 is expected to generate 1.55 times more return on investment than Southern Company. However, Globe Life is 1.55 times more volatile than Southern Company Series. It trades about -0.07 of its potential returns per unit of risk. Southern Company Series is currently generating about -0.14 per unit of risk. If you would invest  1,663  in Globe Life 425 on September 20, 2024 and sell it today you would lose (33.00) from holding Globe Life 425 or give up 1.98% of portfolio value over 90 days.

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

Globe Life 425  vs.  Southern Company Series

Globe Life 425

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Globe Life 425 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Preferred Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Southern Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company Series has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Globe Life and Southern Company

The main advantage of trading using opposite Globe Life and Southern Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Globe Life 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 Globe Life 425 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.