Correlation Between Talen Energy and South Jersey

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

By analyzing existing cross correlation between Talen Energy and South Jersey Industries, you can compare the effects of market volatilities on Talen Energy and South Jersey 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 Talen Energy with a short position of South Jersey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Talen Energy and South Jersey.

Diversification Opportunities for Talen Energy and South Jersey

-0.56

Correlation Coefficient

Talen Energy  South Jersey

Excellent diversification

The 3 months correlation between Talen and South is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Talen Energy and South Jersey Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Jersey Industries and Talen 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 Talen Energy are associated (or correlated) with South Jersey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Jersey Industries has no effect on the direction of Talen Energy i.e., Talen Energy and South Jersey go up and down completely randomly.

Pair Corralation between Talen Energy and South Jersey

Considering the 90-day investment horizon Talen Energy is expected to generate 7.23 times more return on investment than South Jersey. However, Talen Energy is 7.23 times more volatile than South Jersey Industries. It trades about 0.17 of its potential returns per unit of risk. South Jersey Industries is currently generating about -0.14 per unit of risk. If you would invest  4,650  in Talen Energy on September 18, 2024 and sell it today you would earn a total of  16,272  from holding Talen Energy or generate 349.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	11.6%
Values	Daily Returns

Talen Energy  vs.  South Jersey Industries

Talen Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

South Jersey Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South Jersey Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, South Jersey is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Talen Energy and South Jersey

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

The idea behind Talen Energy and South Jersey Industries 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.