Correlation Between Southern Company and WR Berkley
Can any of the company-specific risk be diversified away by investing in both Southern Company and WR Berkley 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 WR Berkley 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 WR Berkley, you can compare the effects of market volatilities on Southern Company and WR Berkley 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 WR Berkley. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and WR Berkley.
Diversification Opportunities for Southern Company and WR Berkley
0.96 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Southern and WRB-PG is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and WR Berkley in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WR Berkley 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 WR Berkley. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WR Berkley has no effect on the direction of Southern Company i.e., Southern Company and WR Berkley go up and down completely randomly.
Pair Corralation between Southern Company and WR Berkley
Given the investment horizon of 90 days Southern Company Series is expected to under-perform the WR Berkley. But the stock apears to be less risky and, when comparing its historical volatility, Southern Company Series is 1.0 times less risky than WR Berkley. The stock trades about -0.14 of its potential returns per unit of risk. The WR Berkley is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 1,925 in WR Berkley on September 2, 2024 and sell it today you would earn a total of 9.00 from holding WR Berkley or generate 0.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Company Series vs. WR Berkley
Performance |
| Timeline |
| Southern Company |
| WR Berkley |
Southern Company and WR Berkley Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Company and WR Berkley
The main advantage of trading using opposite Southern Company and WR Berkley positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Company position performs unexpectedly, WR Berkley 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 WR Berkley will offset losses from the drop in WR Berkley's long position.| Southern Company vs. DTE Energy Co | Southern Company vs. Affiliated Managers Group, | Southern Company vs. United States Cellular |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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