Correlation Between Southern and SOJE

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

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

Diversification Opportunities for Southern and SOJE

0.88

Correlation Coefficient

Southern  SOJE

Very poor diversification

The 3 months correlation between Southern and SOJE is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Southern Co and SOJE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SOJE 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 Co are associated (or correlated) with SOJE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SOJE has no effect on the direction of Southern i.e., Southern and SOJE go up and down completely randomly.

Pair Corralation between Southern and SOJE

Given the investment horizon of 90 days Southern Co is expected to under-perform the SOJE. But the stock apears to be less risky and, when comparing its historical volatility, Southern Co is 1.02 times less risky than SOJE. The stock trades about -0.09 of its potential returns per unit of risk. The SOJE is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,060  in SOJE on March 7, 2024 and sell it today you would lose (72.00) from holding SOJE or give up 3.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Southern Co  vs.  SOJE

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Southern is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SOJE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SOJE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, SOJE is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southern and SOJE

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

The idea behind Southern Co and SOJE 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 Stocks Directory module to find actively traded stocks across global markets.