Correlation Between Southern and SSE PLC
Can any of the company-specific risk be diversified away by investing in both Southern and SSE PLC 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 SSE PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Co and SSE PLC ADR, you can compare the effects of market volatilities on Southern and SSE PLC 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and SSE PLC.
Diversification Opportunities for Southern and SSE PLC
Very poor diversification
The 3 months correlation between Southern and SSE is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Southern Co and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 Co are associated (or correlated) with SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of Southern i.e., Southern and SSE PLC go up and down completely randomly.
Pair Corralation between Southern and SSE PLC
Given the investment horizon of 90 days Southern Co is expected to generate 0.55 times more return on investment than SSE PLC. However, Southern Co is 1.82 times less risky than SSE PLC. It trades about -0.19 of its potential returns per unit of risk. SSE PLC ADR is currently generating about -0.28 per unit of risk. If you would invest 2,429 in Southern Co on September 12, 2024 and sell it today you would lose (125.00) from holding Southern Co or give up 5.15% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Co vs. SSE PLC ADR
Performance |
| Timeline |
| Southern |
| SSE PLC ADR |
Southern and SSE PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern and SSE PLC
The main advantage of trading using opposite Southern and SSE PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, SSE PLC 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 SSE PLC will offset losses from the drop in SSE PLC's long position.| Southern vs. Old Republic International | Southern vs. Cincinnati Financial | Southern vs. QBE Insurance Group | Southern vs. Sphere Entertainment Co |
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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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