Correlation Between ATT and Southern

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

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

Diversification Opportunities for ATT and Southern

0.27

Correlation Coefficient

ATT  Southern

Modest diversification

The 3 months correlation between ATT and Southern is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Southern Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and ATT 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 ATT Inc are associated (or correlated) with Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of ATT i.e., ATT and Southern go up and down completely randomly.

Pair Corralation between ATT and Southern

Considering the 90-day investment horizon ATT Inc is expected to under-perform the Southern. But the stock apears to be less risky and, when comparing its historical volatility, ATT Inc is 1.79 times less risky than Southern. The stock trades about -0.1 of its potential returns per unit of risk. The Southern Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,047  in Southern Co on December 28, 2024 and sell it today you would earn a total of  18.00  from holding Southern Co or generate 0.88% return on investment over 90 days.

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

ATT Inc  vs.  Southern Co

ATT Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days ATT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, ATT is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Southern

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking indicators, Southern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ATT and Southern

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

The idea behind ATT Inc and Southern Co 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.