Correlation Between Dominion Energy and Southern
Can any of the company-specific risk be diversified away by investing in both Dominion Energy and Southern 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 Dominion Energy and Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dominion Energy and Southern Company, you can compare the effects of market volatilities on Dominion Energy and Southern 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 Dominion Energy with a short position of Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dominion Energy and Southern.
Diversification Opportunities for Dominion Energy and Southern
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Dominion and Southern is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Dominion Energy and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Dominion 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 Dominion Energy are associated (or correlated) with Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of Dominion Energy i.e., Dominion Energy and Southern go up and down completely randomly.
Pair Corralation between Dominion Energy and Southern
Taking into account the 90-day investment horizon Dominion Energy is expected to generate 1.4 times more return on investment than Southern. However, Dominion Energy is 1.4 times more volatile than Southern Company. It trades about 0.17 of its potential returns per unit of risk. Southern Company is currently generating about 0.22 per unit of risk. If you would invest 4,825 in Dominion Energy on January 25, 2024 and sell it today you would earn a total of 298.00 from holding Dominion Energy or generate 6.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dominion Energy vs. Southern Company
Performance |
| Timeline |
| Dominion Energy |
| Southern |
Dominion Energy and Southern Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Dominion Energy and Southern
The main advantage of trading using opposite Dominion Energy and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dominion Energy position performs unexpectedly, Southern 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 Southern will offset losses from the drop in Southern's long position.| Dominion Energy vs. Southern Company | Dominion Energy vs. American Electric Power | Dominion Energy vs. Nextera Energy | Dominion Energy vs. Consolidated Edison |
| Southern vs. Dominion Energy | Southern vs. American Electric Power | Southern vs. Nextera Energy | Southern vs. Consolidated Edison |
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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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