Correlation Between Southern Company and Structured Products

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

By analyzing existing cross correlation between Southern Company Series and Structured Products Corp, you can compare the effects of market volatilities on Southern Company and Structured Products 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 Company with a short position of Structured Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and Structured Products.

Diversification Opportunities for Southern Company and Structured Products

0.24

Correlation Coefficient

Southern Company  Structured Products

Modest diversification

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

Pair Corralation between Southern Company and Structured Products

Given the investment horizon of 90 days Southern Company Series is expected to generate 1.06 times more return on investment than Structured Products. However, Southern Company is 1.06 times more volatile than Structured Products Corp. It trades about 0.03 of its potential returns per unit of risk. Structured Products Corp is currently generating about 0.01 per unit of risk. If you would invest  1,835  in Southern Company Series on December 30, 2024 and sell it today you would earn a total of  22.00  from holding Southern Company Series or generate 1.2% return on investment over 90 days.

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

Southern Company Series  vs.  Structured Products Corp

Southern Company

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company Series are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, Southern Company is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Structured Products Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Structured Products Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Structured Products is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Southern Company and Structured Products

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

The idea behind Southern Company Series and Structured Products Corp 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.