Correlation Between Southern and Solar Alliance

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

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

Diversification Opportunities for Southern and Solar Alliance

0.66

Correlation Coefficient

Southern  Solar Alliance

Poor diversification

The 3 months correlation between Southern and Solar is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Southern Co and Solar Alliance Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Alliance Energy 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 Co are associated (or correlated) with Solar Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Alliance Energy has no effect on the direction of Southern i.e., Southern and Solar Alliance go up and down completely randomly.

Pair Corralation between Southern and Solar Alliance

Given the investment horizon of 90 days Southern is expected to generate 4.39 times less return on investment than Solar Alliance. But when comparing it to its historical volatility, Southern Co is 7.02 times less risky than Solar Alliance. It trades about 0.1 of its potential returns per unit of risk. Solar Alliance Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2.00  in Solar Alliance Energy on October 20, 2024 and sell it today you would earn a total of  0.08  from holding Solar Alliance Energy or generate 4.0% return on investment over 90 days.

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

Southern Co  vs.  Solar Alliance Energy

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Preferred Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Solar Alliance Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solar Alliance Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Southern and Solar Alliance

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

The idea behind Southern Co and Solar Alliance Energy 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.