Correlation Between Southern and Westar Energy

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

By analyzing existing cross correlation between Southern Company and Westar Energy, you can compare the effects of market volatilities on Southern and Westar 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 with a short position of Westar Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Westar Energy.

Diversification Opportunities for Southern and Westar Energy

0.0

Correlation Coefficient

Southern  Westar Energy

Pay attention - limited upside

The 3 months correlation between Southern and Westar is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Westar Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westar Energy 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 Westar Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westar Energy has no effect on the direction of Southern i.e., Southern and Westar Energy go up and down completely randomly.

Pair Corralation between Southern and Westar Energy

If you would invest  6,976  in Southern Company on January 24, 2024 and sell it today you would earn a total of  322.00  from holding Southern Company or generate 4.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Southern Company  vs.  Westar Energy

Southern

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southern Company are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Southern may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Westar Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westar Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Westar Energy is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Southern and Westar Energy

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

The idea behind Southern Company and Westar 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.