Correlation Between Talen Energy and Southern Company

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

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

Diversification Opportunities for Talen Energy and Southern Company

-0.49

Correlation Coefficient

Talen Energy  Southern Company

Very good diversification

The 3 months correlation between Talen and Southern is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Talen Energy and Southern Company Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Company 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 Southern Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Company has no effect on the direction of Talen Energy i.e., Talen Energy and Southern Company go up and down completely randomly.

Pair Corralation between Talen Energy and Southern Company

Considering the 90-day investment horizon Talen Energy is expected to generate 4.4 times more return on investment than Southern Company. However, Talen Energy is 4.4 times more volatile than Southern Company Series. It trades about 0.22 of its potential returns per unit of risk. Southern Company Series is currently generating about -0.08 per unit of risk. If you would invest  13,828  in Talen Energy on September 2, 2024 and sell it today you would earn a total of  7,613  from holding Talen Energy or generate 55.05% return on investment over 90 days.

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

Talen Energy  vs.  Southern Company Series

Talen Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Southern Company

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company Series has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Talen Energy and Southern Company

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

The idea behind Talen Energy and Southern Company Series 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.