Correlation Between SOUTHERN and Diageo PLC

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Can any of the company-specific risk be diversified away by investing in both SOUTHERN and Diageo PLC 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 and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SOUTHERN CALIF EDISON and Diageo PLC ADR, you can compare the effects of market volatilities on SOUTHERN and Diageo PLC 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 with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of SOUTHERN and Diageo PLC.

Diversification Opportunities for SOUTHERN and Diageo PLC

0.03
  Correlation Coefficient

Significant diversification

The 3 months correlation between SOUTHERN and Diageo is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding SOUTHERN CALIF EDISON and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and SOUTHERN 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 CALIF EDISON are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of SOUTHERN i.e., SOUTHERN and Diageo PLC go up and down completely randomly.

Pair Corralation between SOUTHERN and Diageo PLC

Assuming the 90 days trading horizon SOUTHERN CALIF EDISON is expected to under-perform the Diageo PLC. In addition to that, SOUTHERN is 1.23 times more volatile than Diageo PLC ADR. It trades about -0.04 of its total potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.02 per unit of volatility. If you would invest  14,066  in Diageo PLC ADR on September 12, 2024 and sell it today you would lose (1,315) from holding Diageo PLC ADR or give up 9.35% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy59.68%
ValuesDaily Returns

SOUTHERN CALIF EDISON  vs.  Diageo PLC ADR

 Performance 
       Timeline  
SOUTHERN CALIF EDISON 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days SOUTHERN CALIF EDISON has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Bond's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for SOUTHERN CALIF EDISON investors.
Diageo PLC ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

SOUTHERN and Diageo PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SOUTHERN and Diageo PLC

The main advantage of trading using opposite SOUTHERN and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SOUTHERN position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.
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The idea behind SOUTHERN CALIF EDISON and Diageo PLC ADR 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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