Correlation Between Southern and Brookfield Renewable

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

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

Diversification Opportunities for Southern and Brookfield Renewable

0.5

Correlation Coefficient

Southern  Brookfield Renewable

Very weak diversification

The 3 months correlation between Southern and Brookfield is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Brookfield Renewable Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable Corp and Southern 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 Southern Company are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable Corp has no effect on the direction of Southern i.e., Southern and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Southern and Brookfield Renewable

Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.65 times more return on investment than Brookfield Renewable. However, Southern Company is 1.53 times less risky than Brookfield Renewable. It trades about 0.14 of its potential returns per unit of risk. Brookfield Renewable Corp is currently generating about 0.02 per unit of risk. If you would invest  8,169  in Southern Company on December 30, 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	Weak
Accuracy	100.0%
Values	Daily Returns

Southern Company  vs.  Brookfield Renewable Corp

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.

Brookfield Renewable Corp

Risk-Adjusted Performance

Weak

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

Pair Trading with Southern and Brookfield Renewable

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

The idea behind Southern Company and Brookfield Renewable 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.