Correlation Between Southern and Exelon

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

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

Diversification Opportunities for Southern and Exelon

0.94

Correlation Coefficient

Southern  Exelon

Almost no diversification

The 3 months correlation between Southern and Exelon is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Exelon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon 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 Exelon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon has no effect on the direction of Southern i.e., Southern and Exelon go up and down completely randomly.

Pair Corralation between Southern and Exelon

Allowing for the 90-day total investment horizon Southern is expected to generate 1.63 times less return on investment than Exelon. In addition to that, Southern is 1.05 times more volatile than Exelon. It trades about 0.14 of its total potential returns per unit of risk. Exelon is currently generating about 0.23 per unit of volatility. If you would invest  3,728  in Exelon on December 28, 2024 and sell it today you would earn a total of  743.00  from holding Exelon or generate 19.93% return on investment over 90 days.

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

Southern Company  vs.  Exelon

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.

Exelon

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Exelon are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Exelon exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern and Exelon

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

The idea behind Southern Company and Exelon 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.