Correlation Between National Grid and Southern

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

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

Diversification Opportunities for National Grid and Southern

0.76

Correlation Coefficient

National Grid  Southern

Poor diversification

The 3 months correlation between National and Southern is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and National Grid 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 National Grid PLC 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 National Grid i.e., National Grid and Southern go up and down completely randomly.

Pair Corralation between National Grid and Southern

Considering the 90-day investment horizon National Grid is expected to generate 1.07 times less return on investment than Southern. In addition to that, National Grid is 1.0 times more volatile than Southern Company. It trades about 0.13 of its total potential returns per unit of risk. Southern Company is currently generating about 0.14 per unit of volatility. If you would invest  8,169  in Southern Company on December 29, 2024 and sell it today you would earn a total of  944.00  from holding Southern Company or generate 11.56% return on investment over 90 days.

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

National Grid PLC  vs.  Southern Company

National Grid PLC

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in National Grid PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating technical and fundamental indicators, National Grid may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Southern

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Southern may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with National Grid and Southern

The main advantage of trading using opposite National Grid and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Grid 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 National Grid PLC 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.