Correlation Between Southern and CK Infrastructure

Can any of the company-specific risk be diversified away by investing in both Southern and CK Infrastructure 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 CK Infrastructure into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Southern Company and CK Infrastructure Holdings, you can compare the effects of market volatilities on Southern and CK Infrastructure 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 CK Infrastructure. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and CK Infrastructure.

Diversification Opportunities for Southern and CK Infrastructure

0.65

Correlation Coefficient

Southern  CK Infrastructure

Poor diversification

The 3 months correlation between Southern and CKISF is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and CK Infrastructure Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CK Infrastructure 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 Company are associated (or correlated) with CK Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CK Infrastructure has no effect on the direction of Southern i.e., Southern and CK Infrastructure go up and down completely randomly.

Pair Corralation between Southern and CK Infrastructure

Allowing for the 90-day total investment horizon Southern is expected to generate 1.35 times less return on investment than CK Infrastructure. But when comparing it to its historical volatility, Southern Company is 2.11 times less risky than CK Infrastructure. It trades about 0.02 of its potential returns per unit of risk. CK Infrastructure Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  590.00  in CK Infrastructure Holdings on February 16, 2024 and sell it today you would earn a total of  10.00  from holding CK Infrastructure Holdings or generate 1.69% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	87.85%
Values	Daily Returns

Southern Company  vs.  CK Infrastructure Holdings

Southern

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Southern displayed solid returns over the last few months and may actually be approaching a breakup point.

CK Infrastructure

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CK Infrastructure Holdings are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, CK Infrastructure is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Southern and CK Infrastructure

The main advantage of trading using opposite Southern and CK Infrastructure positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern position performs unexpectedly, CK Infrastructure 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 CK Infrastructure will offset losses from the drop in CK Infrastructure's long position.

The idea behind Southern Company and CK Infrastructure Holdings 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 Correlations module to find global opportunities by holding instruments from different markets.