Correlation Between Consolidated Edison and Southern
Can any of the company-specific risk be diversified away by investing in both Consolidated Edison 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 Consolidated Edison and Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Consolidated Edison and Southern Company, you can compare the effects of market volatilities on Consolidated Edison 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 Consolidated Edison with a short position of Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Consolidated Edison and Southern.
Diversification Opportunities for Consolidated Edison and Southern
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Consolidated and Southern is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Consolidated Edison 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 Consolidated Edison 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 Consolidated Edison i.e., Consolidated Edison and Southern go up and down completely randomly.
Pair Corralation between Consolidated Edison and Southern
Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.92 times less return on investment than Southern. But when comparing it to its historical volatility, Consolidated Edison is 1.03 times less risky than Southern. It trades about 0.05 of its potential returns per unit of risk. Southern Company is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 6,846 in Southern Company on August 26, 2024 and sell it today you would earn a total of 1,914 from holding Southern Company or generate 27.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Consolidated Edison vs. Southern Company
Performance |
| Timeline |
| Consolidated Edison |
| Southern |
Consolidated Edison and Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Consolidated Edison and Southern
The main advantage of trading using opposite Consolidated Edison and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Edison 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.| Consolidated Edison vs. Entergy | Consolidated Edison vs. Ameren Corp | Consolidated Edison vs. Alliant Energy Corp | Consolidated Edison vs. Pinnacle West Capital |
| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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