Correlation Between Caribbean Utilities and Southern
Can any of the company-specific risk be diversified away by investing in both Caribbean Utilities 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 Caribbean Utilities and Southern into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Caribbean Utilities and Southern Company, you can compare the effects of market volatilities on Caribbean Utilities 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 Caribbean Utilities with a short position of Southern. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caribbean Utilities and Southern.
Diversification Opportunities for Caribbean Utilities and Southern
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Caribbean and Southern is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Caribbean Utilities and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Caribbean Utilities 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 Caribbean Utilities 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 Caribbean Utilities i.e., Caribbean Utilities and Southern go up and down completely randomly.
Pair Corralation between Caribbean Utilities and Southern
Assuming the 90 days horizon Caribbean Utilities is expected to generate 1.6 times more return on investment than Southern. However, Caribbean Utilities is 1.6 times more volatile than Southern Company. It trades about 0.23 of its potential returns per unit of risk. Southern Company is currently generating about 0.17 per unit of risk. If you would invest 1,151 in Caribbean Utilities on January 24, 2024 and sell it today you would earn a total of 199.00 from holding Caribbean Utilities or generate 17.29% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Caribbean Utilities vs. Southern Company
Performance |
Timeline |
Caribbean Utilities |
Southern |
Caribbean Utilities and Southern Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Caribbean Utilities and Southern
The main advantage of trading using opposite Caribbean Utilities and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caribbean Utilities 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.Caribbean Utilities vs. Ameren Corp | Caribbean Utilities vs. PNM Resources | Caribbean Utilities vs. Centrais Electricas Brasileiras | Caribbean Utilities vs. CMS Energy |
Southern vs. Centrais Eltricas Brasileiras | Southern vs. Central Puerto SA | Southern vs. CMS Energy | Southern vs. Centrais Electricas Brasileiras |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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