Correlation Between Southern and Xcel Energy

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

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

Diversification Opportunities for Southern and Xcel Energy

0.61

Correlation Coefficient

Southern  Xcel Energy

Poor diversification

The 3 months correlation between Southern and Xcel is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding The Southern and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel 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 The Southern are associated (or correlated) with Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Southern i.e., Southern and Xcel Energy go up and down completely randomly.

Pair Corralation between Southern and Xcel Energy

Assuming the 90 days horizon The Southern is expected to generate 1.08 times more return on investment than Xcel Energy. However, Southern is 1.08 times more volatile than Xcel Energy. It trades about 0.04 of its potential returns per unit of risk. Xcel Energy is currently generating about -0.01 per unit of risk. If you would invest  7,864  in The Southern on December 26, 2024 and sell it today you would earn a total of  248.00  from holding The Southern or generate 3.15% return on investment over 90 days.

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

The Southern  vs.  Xcel Energy

Southern

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Southern are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Southern is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Xcel Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xcel Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xcel Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southern and Xcel Energy

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

The idea behind The Southern and Xcel 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.

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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.