Correlation Between Southwestern Energy and Exela Technologies

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

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

Diversification Opportunities for Southwestern Energy and Exela Technologies

0.39

Correlation Coefficient

Southwestern Energy  Exela Technologies

Weak diversification

The 3 months correlation between Southwestern and Exela is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Southwestern Energy and Exela Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Exela Technologies and Southwestern 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 Southwestern Energy are associated (or correlated) with Exela Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Exela Technologies has no effect on the direction of Southwestern Energy i.e., Southwestern Energy and Exela Technologies go up and down completely randomly.

Pair Corralation between Southwestern Energy and Exela Technologies

Considering the 90-day investment horizon Southwestern Energy is expected to under-perform the Exela Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Southwestern Energy is 3.77 times less risky than Exela Technologies. The stock trades about -0.11 of its potential returns per unit of risk. The Exela Technologies is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  231.00  in Exela Technologies on February 27, 2024 and sell it today you would earn a total of  47.00  from holding Exela Technologies or generate 20.35% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Southwestern Energy  vs.  Exela Technologies

Southwestern Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Southwestern Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Southwestern Energy may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Exela Technologies

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Exela Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Exela Technologies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southwestern Energy and Exela Technologies

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

The idea behind Southwestern Energy and Exela Technologies 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.