Correlation Between Southern and Exelon
Can any of the company-specific risk be diversified away by investing in both Southern and Exelon 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 Exelon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and Exelon, you can compare the effects of market volatilities on Southern and Exelon 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 Exelon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Exelon.
Diversification Opportunities for Southern and Exelon
Very poor diversification
The 3 months correlation between Southern and Exelon is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Exelon in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exelon 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 Exelon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exelon has no effect on the direction of Southern i.e., Southern and Exelon go up and down completely randomly.
Pair Corralation between Southern and Exelon
Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.82 times more return on investment than Exelon. However, Southern Company is 1.21 times less risky than Exelon. It trades about 0.1 of its potential returns per unit of risk. Exelon is currently generating about 0.02 per unit of risk. 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 | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company vs. Exelon
Performance |
| Timeline |
| Southern |
| Exelon |
Southern and Exelon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and Exelon
The main advantage of trading using opposite Southern and Exelon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, Exelon 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 Exelon will offset losses from the drop in Exelon's long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| Exelon vs. Duke Energy | Exelon vs. Dominion Energy | Exelon vs. Southern Company | Exelon 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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