Correlation Between Southern and Clearway Energy

Can any of the company-specific risk be diversified away by investing in both Southern and Clearway 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 Clearway 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 Clearway Energy Class, you can compare the effects of market volatilities on Southern and Clearway 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 Clearway Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and Clearway Energy.

Diversification Opportunities for Southern and Clearway Energy

0.81

Correlation Coefficient

Southern  Clearway Energy

Very poor diversification

The 3 months correlation between Southern and Clearway is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Clearway Energy Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearway Energy Class 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 Clearway Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearway Energy Class has no effect on the direction of Southern i.e., Southern and Clearway Energy go up and down completely randomly.

Pair Corralation between Southern and Clearway Energy

Allowing for the 90-day total investment horizon Southern is expected to generate 1.23 times less return on investment than Clearway Energy. But when comparing it to its historical volatility, Southern Company is 1.35 times less risky than Clearway Energy. It trades about 0.12 of its potential returns per unit of risk. Clearway Energy Class is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,454  in Clearway Energy Class on January 10, 2025 and sell it today you would earn a total of  301.00  from holding Clearway Energy Class or generate 12.27% return on investment over 90 days.

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

Southern Company  vs.  Clearway Energy Class

Southern

Risk-Adjusted Performance

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 unsteady basic indicators, Southern may actually be approaching a critical reversion point that can send shares even higher in May 2025.

Clearway Energy Class

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Clearway Energy Class are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady technical and fundamental indicators, Clearway Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Southern and Clearway Energy

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

The idea behind Southern Company and Clearway Energy Class 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.