Correlation Between Southern and Centrais Elétricas
Can any of the company-specific risk be diversified away by investing in both Southern and Centrais Elétricas 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 Centrais Elétricas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and Centrais Eltricas Brasileiras, you can compare the effects of market volatilities on Southern and Centrais Elétricas 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 Centrais Elétricas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Centrais Elétricas.
Diversification Opportunities for Southern and Centrais Elétricas
0.61 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southern and Centrais is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Elétricas 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 Centrais Elétricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Elétricas has no effect on the direction of Southern i.e., Southern and Centrais Elétricas go up and down completely randomly.
Pair Corralation between Southern and Centrais Elétricas
Allowing for the 90-day total investment horizon Southern is expected to generate 2.57 times less return on investment than Centrais Elétricas. In addition to that, Southern is 1.13 times more volatile than Centrais Eltricas Brasileiras. It trades about 0.11 of its total potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about 0.33 per unit of volatility. If you would invest 625.00 in Centrais Eltricas Brasileiras on November 5, 2024 and sell it today you would earn a total of 61.00 from holding Centrais Eltricas Brasileiras or generate 9.76% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Southern Company vs. Centrais Eltricas Brasileiras
Performance |
| Timeline |
| Southern |
| Centrais Elétricas |
Southern and Centrais Elétricas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and Centrais Elétricas
The main advantage of trading using opposite Southern and Centrais Elétricas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, Centrais Elétricas 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 Centrais Elétricas will offset losses from the drop in Centrais Elétricas' long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| Centrais Elétricas vs. Nextera Energy | Centrais Elétricas vs. Consumers Energy | Centrais Elétricas vs. Duke Energy | Centrais Elétricas vs. Red Electrica Corporacion |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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