Correlation Between Southern Company and SSE PLC

Can any of the company-specific risk be diversified away by investing in both Southern Company and SSE PLC 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 SSE PLC 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 SSE PLC ADR, you can compare the effects of market volatilities on Southern Company and SSE PLC 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and SSE PLC.

Diversification Opportunities for Southern Company and SSE PLC

0.5

Correlation Coefficient

Southern Company  SSE PLC

Very weak diversification

The 3 months correlation between Southern and SSE is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of Southern Company i.e., Southern Company and SSE PLC go up and down completely randomly.

Pair Corralation between Southern Company and SSE PLC

Given the investment horizon of 90 days Southern Company is expected to generate 3.4 times less return on investment than SSE PLC. But when comparing it to its historical volatility, Southern Company Series is 1.59 times less risky than SSE PLC. It trades about 0.03 of its potential returns per unit of risk. SSE PLC ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,982  in SSE PLC ADR on December 21, 2024 and sell it today you would earn a total of  85.00  from holding SSE PLC ADR or generate 4.29% return on investment over 90 days.

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

Southern Company Series  vs.  SSE PLC ADR

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.

SSE PLC ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SSE PLC ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, SSE PLC 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 Company and SSE PLC

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

The idea behind Southern Company Series and SSE PLC ADR 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.