Correlation Between Southern and EuroSite Power

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

By analyzing existing cross correlation between Southern Company and EuroSite Power, you can compare the effects of market volatilities on Southern and EuroSite Power 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 EuroSite Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and EuroSite Power.

Diversification Opportunities for Southern and EuroSite Power

0.15

Correlation Coefficient

Southern  EuroSite Power

Average diversification

The 3 months correlation between Southern and EuroSite is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and EuroSite Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroSite Power 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 EuroSite Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EuroSite Power has no effect on the direction of Southern i.e., Southern and EuroSite Power go up and down completely randomly.

Pair Corralation between Southern and EuroSite Power

Allowing for the 90-day total investment horizon Southern Company is expected to under-perform the EuroSite Power. But the stock apears to be less risky and, when comparing its historical volatility, Southern Company is 8.95 times less risky than EuroSite Power. The stock trades about -0.14 of its potential returns per unit of risk. The EuroSite Power is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  5.00  in EuroSite Power on October 25, 2024 and sell it today you would lose (1.00) from holding EuroSite Power or give up 20.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Southern Company  vs.  EuroSite Power

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

EuroSite Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuroSite Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, EuroSite Power may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Southern and EuroSite Power

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

The idea behind Southern Company and EuroSite Power 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.