Correlation Between Southern and Kenon Holdings

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

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

Diversification Opportunities for Southern and Kenon Holdings

-0.75

Correlation Coefficient

Southern  Kenon Holdings

Pay attention - limited upside

The 3 months correlation between Southern and Kenon is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Kenon Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kenon Holdings 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 Kenon Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kenon Holdings has no effect on the direction of Southern i.e., Southern and Kenon Holdings go up and down completely randomly.

Pair Corralation between Southern and Kenon Holdings

Allowing for the 90-day total investment horizon Southern Company is expected to under-perform the Kenon Holdings. But the stock apears to be less risky and, when comparing its historical volatility, Southern Company is 3.04 times less risky than Kenon Holdings. The stock trades about -0.13 of its potential returns per unit of risk. The Kenon Holdings is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  3,100  in Kenon Holdings on October 8, 2024 and sell it today you would earn a total of  77.00  from holding Kenon Holdings or generate 2.48% return on investment over 90 days.

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

Southern Company  vs.  Kenon Holdings

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.

Kenon Holdings

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kenon Holdings are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Kenon Holdings displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern and Kenon Holdings

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

The idea behind Southern Company and Kenon Holdings 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.