Correlation Between SOUTHERN and Analog Devices

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

By analyzing existing cross correlation between SOUTHERN PER CORP and Analog Devices, you can compare the effects of market volatilities on SOUTHERN and Analog Devices 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 Analog Devices. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHERN and Analog Devices.

Diversification Opportunities for SOUTHERN and Analog Devices

0.26

Correlation Coefficient

SOUTHERN  Analog Devices

Modest diversification

The 3 months correlation between SOUTHERN and Analog is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHERN PER CORP and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices 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 SOUTHERN PER CORP are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of SOUTHERN i.e., SOUTHERN and Analog Devices go up and down completely randomly.

Pair Corralation between SOUTHERN and Analog Devices

Assuming the 90 days trading horizon SOUTHERN is expected to generate 12.15 times less return on investment than Analog Devices. But when comparing it to its historical volatility, SOUTHERN PER CORP is 5.54 times less risky than Analog Devices. It trades about 0.02 of its potential returns per unit of risk. Analog Devices is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,981  in Analog Devices on September 21, 2024 and sell it today you would earn a total of  2,797  from holding Analog Devices or generate 15.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.4%
Values	Daily Returns

SOUTHERN PER CORP  vs.  Analog Devices

SOUTHERN PER P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SOUTHERN PER CORP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, SOUTHERN is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with SOUTHERN and Analog Devices

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

The idea behind SOUTHERN PER CORP and Analog Devices 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 CEOs Directory module to screen CEOs from public companies around the world.