Correlation Between Public Service and Southern

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

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

Diversification Opportunities for Public Service and Southern

-0.64

Correlation Coefficient

Public Service  Southern

Excellent diversification

The 3 months correlation between Public and Southern is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Public Service Enterprise and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Public Service 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 Public Service Enterprise 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 Public Service i.e., Public Service and Southern go up and down completely randomly.

Pair Corralation between Public Service and Southern

Considering the 90-day investment horizon Public Service Enterprise is expected to under-perform the Southern. In addition to that, Public Service is 1.06 times more volatile than Southern Company. It trades about -0.04 of its total potential returns per unit of risk. Southern Company is currently generating about 0.11 per unit of volatility. If you would invest  8,244  in Southern Company on December 27, 2024 and sell it today you would earn a total of  759.00  from holding Southern Company or generate 9.21% return on investment over 90 days.

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

Public Service Enterprise  vs.  Southern Company

Public Service Enterprise

Risk-Adjusted Performance

Very Weak

Over the last 90 days Public Service Enterprise has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Public Service is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Southern

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 8 (%) 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 Public Service and Southern

The main advantage of trading using opposite Public Service and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Public Service 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 Public Service Enterprise 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.