Correlation Between Southern and Vanguard Utilities

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

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

Diversification Opportunities for Southern and Vanguard Utilities

0.49

Correlation Coefficient

Southern  Vanguard Utilities

Very weak diversification

The 3 months correlation between Southern and Vanguard is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Vanguard Utilities Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Utilities Index 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 Vanguard Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Utilities Index has no effect on the direction of Southern i.e., Southern and Vanguard Utilities go up and down completely randomly.

Pair Corralation between Southern and Vanguard Utilities

Allowing for the 90-day total investment horizon Southern Company is expected to generate 1.28 times more return on investment than Vanguard Utilities. However, Southern is 1.28 times more volatile than Vanguard Utilities Index. It trades about 0.14 of its potential returns per unit of risk. Vanguard Utilities Index is currently generating about 0.05 per unit of risk. If you would invest  8,169  in Southern Company on December 30, 2024 and sell it today you would earn a total of  944.00  from holding Southern Company or generate 11.56% return on investment over 90 days.

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

Southern Company  vs.  Vanguard Utilities Index

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.

Vanguard Utilities Index

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Vanguard Utilities 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 Vanguard Utilities

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

The idea behind Southern Company and Vanguard Utilities Index 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.