Correlation Between PPL and Southern
Can any of the company-specific risk be diversified away by investing in both PPL 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 PPL and Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between PPL Corporation and Southern Company, you can compare the effects of market volatilities on PPL 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 PPL with a short position of Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of PPL and Southern.
Diversification Opportunities for PPL and Southern
Modest diversification
The 3 months correlation between PPL and Southern is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and PPL 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 PPL Corporation 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 PPL i.e., PPL and Southern go up and down completely randomly.
Pair Corralation between PPL and Southern
Considering the 90-day investment horizon PPL Corporation is expected to generate 0.96 times more return on investment than Southern. However, PPL Corporation is 1.04 times less risky than Southern. It trades about 0.13 of its potential returns per unit of risk. Southern Company is currently generating about 0.1 per unit of risk. If you would invest 2,520 in PPL Corporation on August 26, 2024 and sell it today you would earn a total of 925.00 from holding PPL Corporation or generate 36.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
PPL Corp. vs. Southern Company
Performance |
| Timeline |
| PPL Corporation |
| Southern |
PPL and Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with PPL and Southern
The main advantage of trading using opposite PPL and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PPL 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 PPL Corporation and Southern Company 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.| 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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