Correlation Between CGX Energy and Southern Energy

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

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

Diversification Opportunities for CGX Energy and Southern Energy

-0.49

Correlation Coefficient

CGX Energy  Southern Energy

Very good diversification

The 3 months correlation between CGX and Southern is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding CGX Energy and Southern Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Energy Corp and CGX 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 CGX Energy are associated (or correlated) with Southern Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Energy Corp has no effect on the direction of CGX Energy i.e., CGX Energy and Southern Energy go up and down completely randomly.

Pair Corralation between CGX Energy and Southern Energy

Assuming the 90 days horizon CGX Energy is expected to under-perform the Southern Energy. But the stock apears to be less risky and, when comparing its historical volatility, CGX Energy is 1.07 times less risky than Southern Energy. The stock trades about -0.12 of its potential returns per unit of risk. The Southern Energy Corp is currently generating about 0.35 of returns per unit of risk over similar time horizon. If you would invest  9.00  in Southern Energy Corp on October 10, 2024 and sell it today you would earn a total of  6.00  from holding Southern Energy Corp or generate 66.67% return on investment over 90 days.

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

CGX Energy  vs.  Southern Energy Corp

CGX Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CGX Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, CGX Energy may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Southern Energy Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Energy Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Southern Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CGX Energy and Southern Energy

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

The idea behind CGX Energy and Southern Energy Corp 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.