Correlation Between Southern and Pacific Gas
Can any of the company-specific risk be diversified away by investing in both Southern and Pacific Gas 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 Pacific Gas into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and Pacific Gas and, you can compare the effects of market volatilities on Southern and Pacific Gas 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 Pacific Gas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Pacific Gas.
Diversification Opportunities for Southern and Pacific Gas
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southern and Pacific is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Pacific Gas and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pacific Gas 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 Pacific Gas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pacific Gas has no effect on the direction of Southern i.e., Southern and Pacific Gas go up and down completely randomly.
Pair Corralation between Southern and Pacific Gas
Allowing for the 90-day total investment horizon Southern is expected to generate 1.23 times less return on investment than Pacific Gas. But when comparing it to its historical volatility, Southern Company is 1.54 times less risky than Pacific Gas. It trades about 0.1 of its potential returns per unit of risk. Pacific Gas and is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 1,450 in Pacific Gas and on September 2, 2024 and sell it today you would earn a total of 500.00 from holding Pacific Gas and or generate 34.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 99.6% |
| Values | Daily Returns |
Southern Company vs. Pacific Gas and
Performance |
| Timeline |
| Southern |
| Pacific Gas |
Southern and Pacific Gas Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and Pacific Gas
The main advantage of trading using opposite Southern and Pacific Gas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, Pacific Gas 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 Pacific Gas will offset losses from the drop in Pacific Gas' long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
| Pacific Gas vs. Nextera Energy | Pacific Gas vs. Duke Energy | Pacific Gas vs. PGE Corp | Pacific Gas 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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