Correlation Between Southern Energy and Valeura Energy
Can any of the company-specific risk be diversified away by investing in both Southern Energy and Valeura Energy 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 Energy and Valeura Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Energy Corp and Valeura Energy, you can compare the effects of market volatilities on Southern Energy and Valeura Energy 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 Energy with a short position of Valeura Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Energy and Valeura Energy.
Diversification Opportunities for Southern Energy and Valeura Energy
-0.68 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Southern and Valeura is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Southern Energy Corp and Valeura Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valeura Energy and Southern Energy 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 Energy Corp are associated (or correlated) with Valeura Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valeura Energy has no effect on the direction of Southern Energy i.e., Southern Energy and Valeura Energy go up and down completely randomly.
Pair Corralation between Southern Energy and Valeura Energy
Assuming the 90 days horizon Southern Energy Corp is expected to under-perform the Valeura Energy. But the stock apears to be less risky and, when comparing its historical volatility, Southern Energy Corp is 1.07 times less risky than Valeura Energy. The stock trades about -0.09 of its potential returns per unit of risk. The Valeura Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 171.00 in Valeura Energy on September 1, 2024 and sell it today you would earn a total of 451.00 from holding Valeura Energy or generate 263.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southern Energy Corp vs. Valeura Energy
Performance |
| Timeline |
| Southern Energy Corp |
| Valeura Energy |
Southern Energy and Valeura Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southern Energy and Valeura Energy
The main advantage of trading using opposite Southern Energy and Valeura Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Energy position performs unexpectedly, Valeura Energy 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 Valeura Energy will offset losses from the drop in Valeura Energy's long position.The idea behind Southern Energy Corp and Valeura Energy 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.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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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