Correlation Between Southern and FirstEnergy
Can any of the company-specific risk be diversified away by investing in both Southern and FirstEnergy 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 FirstEnergy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and FirstEnergy, you can compare the effects of market volatilities on Southern and FirstEnergy 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 FirstEnergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and FirstEnergy.
Diversification Opportunities for Southern and FirstEnergy
0.38 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southern and FirstEnergy is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and FirstEnergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FirstEnergy 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 FirstEnergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FirstEnergy has no effect on the direction of Southern i.e., Southern and FirstEnergy go up and down completely randomly.
Pair Corralation between Southern and FirstEnergy
Allowing for the 90-day total investment horizon Southern Company is expected to generate 1.01 times more return on investment than FirstEnergy. However, Southern is 1.01 times more volatile than FirstEnergy. It trades about 0.07 of its potential returns per unit of risk. FirstEnergy is currently generating about 0.02 per unit of risk. If you would invest 6,253 in Southern Company on August 24, 2024 and sell it today you would earn a total of 2,561 from holding Southern Company or generate 40.96% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Southern Company vs. FirstEnergy
Performance |
| Timeline |
| Southern |
| FirstEnergy |
Southern and FirstEnergy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and FirstEnergy
The main advantage of trading using opposite Southern and FirstEnergy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, FirstEnergy 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 FirstEnergy will offset losses from the drop in FirstEnergy's long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| FirstEnergy vs. CenterPoint Energy | FirstEnergy vs. Pinnacle West Capital | FirstEnergy vs. Edison International | FirstEnergy vs. Public Service Enterprise |
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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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