Correlation Between Southern and Nextera Energy
Can any of the company-specific risk be diversified away by investing in both Southern and Nextera 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 Nextera 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 Nextera Energy, you can compare the effects of market volatilities on Southern and Nextera 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 Nextera Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Nextera Energy.
Diversification Opportunities for Southern and Nextera Energy
0.63 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Southern and Nextera is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of Southern i.e., Southern and Nextera Energy go up and down completely randomly.
Pair Corralation between Southern and Nextera Energy
Allowing for the 90-day total investment horizon Southern Company is expected to generate 0.59 times more return on investment than Nextera Energy. However, Southern Company is 1.69 times less risky than Nextera Energy. It trades about -0.15 of its potential returns per unit of risk. Nextera Energy is currently generating about -0.14 per unit of risk. If you would invest 9,113 in Southern Company on August 26, 2024 and sell it today you would lose (353.00) from holding Southern Company or give up 3.87% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company vs. Nextera Energy
Performance |
| Timeline |
| Southern |
| Nextera Energy |
Southern and Nextera Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and Nextera Energy
The main advantage of trading using opposite Southern and Nextera Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, Nextera 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 Nextera Energy will offset losses from the drop in Nextera Energy's long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| Nextera Energy vs. Dominion Energy | Nextera Energy vs. Consolidated Edison | Nextera Energy vs. Eversource Energy | Nextera Energy vs. FirstEnergy |
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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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