Correlation Between Southern California and Wisconsin Electric

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

By analyzing existing cross correlation between Southern California Gas and Wisconsin Electric Power, you can compare the effects of market volatilities on Southern California and Wisconsin Electric 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 California with a short position of Wisconsin Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern California and Wisconsin Electric.

Diversification Opportunities for Southern California and Wisconsin Electric

0.24

Correlation Coefficient

Southern California  Wisconsin Electric

Modest diversification

The 3 months correlation between Southern and Wisconsin is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Southern California Gas and Wisconsin Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wisconsin Electric Power and Southern California 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 California Gas are associated (or correlated) with Wisconsin Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wisconsin Electric Power has no effect on the direction of Southern California i.e., Southern California and Wisconsin Electric go up and down completely randomly.

Pair Corralation between Southern California and Wisconsin Electric

If you would invest  2,562  in Southern California Gas on October 25, 2024 and sell it today you would earn a total of  7.00  from holding Southern California Gas or generate 0.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	5.56%
Values	Daily Returns

Southern California Gas  vs.  Wisconsin Electric Power

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Southern California is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Wisconsin Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wisconsin Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Wisconsin Electric is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Southern California and Wisconsin Electric

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

The idea behind Southern California Gas and Wisconsin Electric Power 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.