Correlation Between Small Cap and SOUTHERN

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

By analyzing existing cross correlation between Small Cap Premium and SOUTHERN PER CORP, you can compare the effects of market volatilities on Small Cap 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 Small Cap with a short position of SOUTHERN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Small Cap and SOUTHERN.

Diversification Opportunities for Small Cap and SOUTHERN

-0.54

Correlation Coefficient

Small Cap  SOUTHERN

Excellent diversification

The 3 months correlation between Small and SOUTHERN is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Small Cap Premium and SOUTHERN PER CORP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOUTHERN PER P and Small Cap 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 Small Cap Premium 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 PER P has no effect on the direction of Small Cap i.e., Small Cap and SOUTHERN go up and down completely randomly.

Pair Corralation between Small Cap and SOUTHERN

Considering the 90-day investment horizon Small Cap is expected to generate 49.59 times less return on investment than SOUTHERN. But when comparing it to its historical volatility, Small Cap Premium is 92.74 times less risky than SOUTHERN. It trades about 0.08 of its potential returns per unit of risk. SOUTHERN PER CORP is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  11,537  in SOUTHERN PER CORP on October 23, 2024 and sell it today you would lose (113.00) from holding SOUTHERN PER CORP or give up 0.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	94.94%
Values	Daily Returns

Small Cap Premium  vs.  SOUTHERN PER CORP

Small Cap Premium

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Small Cap Premium are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Small Cap is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

SOUTHERN PER P

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SOUTHERN PER CORP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, SOUTHERN is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Small Cap and SOUTHERN

The main advantage of trading using opposite Small Cap and SOUTHERN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Small Cap 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 Small Cap Premium and SOUTHERN PER 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.

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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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.