Correlation Between Southern Company and Northland Power
Can any of the company-specific risk be diversified away by investing in both Southern Company and Northland Power 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 Company and Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company Series and Northland Power, you can compare the effects of market volatilities on Southern Company and Northland Power 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 Company with a short position of Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and Northland Power.
Diversification Opportunities for Southern Company and Northland Power
0.9 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Southern and Northland is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Southern Company 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 Series are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Southern Company i.e., Southern Company and Northland Power go up and down completely randomly.
Pair Corralation between Southern Company and Northland Power
Given the investment horizon of 90 days Southern Company Series is expected to generate 0.42 times more return on investment than Northland Power. However, Southern Company Series is 2.36 times less risky than Northland Power. It trades about -0.18 of its potential returns per unit of risk. Northland Power is currently generating about -0.09 per unit of risk. If you would invest 2,055 in Southern Company Series on September 1, 2024 and sell it today you would lose (79.00) from holding Southern Company Series or give up 3.84% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 95.45% |
| Values | Daily Returns |
Southern Company Series vs. Northland Power
Performance |
| Timeline |
| Southern Company |
| Northland Power |
Southern Company and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Company and Northland Power
The main advantage of trading using opposite Southern Company and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Company position performs unexpectedly, Northland Power 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 Northland Power will offset losses from the drop in Northland Power's long position.| Southern Company vs. Southern Co | Southern Company vs. DTE Energy | Southern Company vs. Southern Co | Southern Company vs. Prudential Financial 4125 |
| Northland Power vs. Nextera Energy | Northland Power vs. Consumers Energy | Northland Power vs. Duke Energy | Northland Power vs. Centrais Electricas Brasileiras |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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