Correlation Between Southern Energy and BMO Aggregate

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

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

Diversification Opportunities for Southern Energy and BMO Aggregate

-0.77

Correlation Coefficient

Southern Energy  BMO Aggregate

Pay attention - limited upside

The 3 months correlation between Southern and BMO is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Southern Energy Corp and BMO Aggregate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Aggregate Bond and Southern Energy 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 Energy Corp are associated (or correlated) with BMO Aggregate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Aggregate Bond has no effect on the direction of Southern Energy i.e., Southern Energy and BMO Aggregate go up and down completely randomly.

Pair Corralation between Southern Energy and BMO Aggregate

Assuming the 90 days horizon Southern Energy Corp is expected to under-perform the BMO Aggregate. In addition to that, Southern Energy is 22.43 times more volatile than BMO Aggregate Bond. It trades about -0.05 of its total potential returns per unit of risk. BMO Aggregate Bond is currently generating about 0.1 per unit of volatility. If you would invest  2,983  in BMO Aggregate Bond on December 21, 2024 and sell it today you would earn a total of  62.00  from holding BMO Aggregate Bond or generate 2.08% return on investment over 90 days.

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

Southern Energy Corp  vs.  BMO Aggregate Bond

Southern Energy Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Southern Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

BMO Aggregate Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Aggregate Bond are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BMO Aggregate is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southern Energy and BMO Aggregate

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

The idea behind Southern Energy Corp and BMO Aggregate Bond 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.