Correlation Between Southern and Utilities Fund

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

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

Diversification Opportunities for Southern and Utilities Fund

0.71

Correlation Coefficient

Southern  Utilities Fund

Poor diversification

The 3 months correlation between Southern and Utilities is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Utilities Fund Investor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Fund Investor 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 Utilities Fund. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Fund Investor has no effect on the direction of Southern i.e., Southern and Utilities Fund go up and down completely randomly.

Pair Corralation between Southern and Utilities Fund

Allowing for the 90-day total investment horizon Southern Company is expected to under-perform the Utilities Fund. In addition to that, Southern is 1.1 times more volatile than Utilities Fund Investor. It trades about -0.1 of its total potential returns per unit of risk. Utilities Fund Investor is currently generating about -0.05 per unit of volatility. If you would invest  5,862  in Utilities Fund Investor on October 6, 2024 and sell it today you would lose (199.00) from holding Utilities Fund Investor or give up 3.39% of portfolio value over 90 days.

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

Southern Company  vs.  Utilities Fund Investor

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.

Utilities Fund Investor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Fund Investor has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Utilities Fund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southern and Utilities Fund

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

The idea behind Southern Company and Utilities Fund Investor 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.