Correlation Between Southern and PPL
Can any of the company-specific risk be diversified away by investing in both Southern and PPL 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 PPL into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company and PPL Corporation, you can compare the effects of market volatilities on Southern and PPL 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 PPL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and PPL.
Diversification Opportunities for Southern and PPL
Modest diversification
The 3 months correlation between Southern and PPL is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and PPL Corp. in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPL Corporation 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 PPL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPL Corporation has no effect on the direction of Southern i.e., Southern and PPL go up and down completely randomly.
Pair Corralation between Southern and PPL
Allowing for the 90-day total investment horizon Southern is expected to generate 1.23 times less return on investment than PPL. In addition to that, Southern is 1.05 times more volatile than PPL Corporation. It trades about 0.09 of its total potential returns per unit of risk. PPL Corporation is currently generating about 0.12 per unit of volatility. If you would invest 2,555 in PPL Corporation on August 27, 2024 and sell it today you would earn a total of 890.00 from holding PPL Corporation or generate 34.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company vs. PPL Corp.
Performance |
| Timeline |
| Southern |
| PPL Corporation |
Southern and PPL Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and PPL
The main advantage of trading using opposite Southern and PPL positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, PPL 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 PPL will offset losses from the drop in PPL's long position.| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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