Correlation Between Southern and Pacific Gas

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

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

Diversification Opportunities for Southern and Pacific Gas

0.44

Correlation Coefficient

Southern  Pacific Gas

Very weak diversification

The 3 months correlation between Southern and Pacific is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Pacific Gas and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Gas 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 Pacific Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Gas has no effect on the direction of Southern i.e., Southern and Pacific Gas go up and down completely randomly.

Pair Corralation between Southern and Pacific Gas

Allowing for the 90-day total investment horizon Southern is expected to generate 3.67 times less return on investment than Pacific Gas. In addition to that, Southern is 1.02 times more volatile than Pacific Gas and. It trades about 0.03 of its total potential returns per unit of risk. Pacific Gas and is currently generating about 0.13 per unit of volatility. If you would invest  1,711  in Pacific Gas and on August 31, 2024 and sell it today you would earn a total of  126.00  from holding Pacific Gas and or generate 7.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Southern Company  vs.  Pacific Gas and

Southern

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pacific Gas

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pacific Gas and are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Pacific Gas may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Southern and Pacific Gas

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

The idea behind Southern Company and Pacific Gas and 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.