Correlation Between Southern Company and WR Berkley

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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

SouthernWRB-PHDiversified AwaySouthernWRB-PHDiversified Away100%
0.8
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Southern and WRB-PH is 0.8. 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 is expected to generate 1.54 times less return on investment than WR Berkley. But when comparing it to its historical volatility, Southern Company Series is 1.31 times less risky than WR Berkley. It trades about 0.02 of its potential returns per unit of risk. WR Berkley is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  1,621  in WR Berkley on November 26, 2024 and sell it today you would earn a total of  152.00  from holding WR Berkley or generate 9.38% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Southern Company Series  vs.  WR Berkley

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-50
JavaScript chart by amCharts 3.21.15SOJE WRB-PH
       Timeline  
Southern Company 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Southern Company Series has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Southern Company is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb17.51818.51919.520
WR Berkley 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days WR Berkley has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, WR Berkley is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1717.51818.519

Southern Company and WR Berkley Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-1.64-1.24-0.84-0.44-0.06150.220.621.021.421.82 0.050.100.150.200.250.300.350.40
JavaScript chart by amCharts 3.21.15SOJE WRB-PH
       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.
The idea behind Southern Company Series and WR Berkley pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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