Correlation Between Southern Company and Prudential Financial
Can any of the company-specific risk be diversified away by investing in both Southern Company and Prudential Financial 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 Prudential Financial 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 Prudential Financial 4125, you can compare the effects of market volatilities on Southern Company and Prudential Financial 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 Prudential Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and Prudential Financial.
Diversification Opportunities for Southern Company and Prudential Financial
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Southern and Prudential is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and Prudential Financial 4125 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Prudential Financial 4125 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 Prudential Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Prudential Financial 4125 has no effect on the direction of Southern Company i.e., Southern Company and Prudential Financial go up and down completely randomly.
Pair Corralation between Southern Company and Prudential Financial
Given the investment horizon of 90 days Southern Company Series is expected to under-perform the Prudential Financial. But the stock apears to be less risky and, when comparing its historical volatility, Southern Company Series is 1.11 times less risky than Prudential Financial. The stock trades about -0.07 of its potential returns per unit of risk. The Prudential Financial 4125 is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 1,922 in Prudential Financial 4125 on November 4, 2024 and sell it today you would lose (56.00) from holding Prudential Financial 4125 or give up 2.91% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company Series vs. Prudential Financial 4125
Performance |
| Timeline |
| Southern Company |
| Prudential Financial 4125 |
Southern Company and Prudential Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Company and Prudential Financial
The main advantage of trading using opposite Southern Company and Prudential Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Company position performs unexpectedly, Prudential Financial 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 Prudential Financial will offset losses from the drop in Prudential Financial's long position.| Southern Company vs. Southern Co | Southern Company vs. DTE Energy | Southern Company vs. Southern Co | Southern Company vs. Prudential Financial 4125 |
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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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.
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