Correlation Between Southern and Consumers Energy
Can any of the company-specific risk be diversified away by investing in both Southern and Consumers Energy 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 Consumers Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and Consumers Energy, you can compare the effects of market volatilities on Southern and Consumers Energy 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 Consumers Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Consumers Energy.
Diversification Opportunities for Southern and Consumers Energy
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southern and Consumers is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy 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 Company are associated (or correlated) with Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Southern i.e., Southern and Consumers Energy go up and down completely randomly.
Pair Corralation between Southern and Consumers Energy
Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.87 times more return on investment than Consumers Energy. However, Southern Company is 1.15 times less risky than Consumers Energy. It trades about 0.1 of its potential returns per unit of risk. Consumers Energy is currently generating about 0.01 per unit of risk. If you would invest 6,456 in Southern Company on November 4, 2024 and sell it today you would earn a total of 1,939 from holding Southern Company or generate 30.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company vs. Consumers Energy
Performance |
| Timeline |
| Southern |
| Consumers Energy |
Southern and Consumers Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and Consumers Energy
The main advantage of trading using opposite Southern and Consumers Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, Consumers Energy 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 Consumers Energy will offset losses from the drop in Consumers Energy's long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| Consumers Energy vs. Nextera Energy | Consumers Energy vs. Duke Energy | Consumers Energy vs. PGE Corp | Consumers Energy vs. Southern Company |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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