Correlation Between Connecticut Light and Southern

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

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

Diversification Opportunities for Connecticut Light and Southern

0.31

Correlation Coefficient

Connecticut Light  Southern

Weak diversification

The 3 months correlation between Connecticut and Southern is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding The Connecticut Light and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern and Connecticut Light 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 The Connecticut Light 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 Connecticut Light i.e., Connecticut Light and Southern go up and down completely randomly.

Pair Corralation between Connecticut Light and Southern

Assuming the 90 days horizon The Connecticut Light is expected to generate 6.38 times more return on investment than Southern. However, Connecticut Light is 6.38 times more volatile than Southern Company. It trades about 0.04 of its potential returns per unit of risk. Southern Company is currently generating about 0.1 per unit of risk. If you would invest  5,071  in The Connecticut Light on September 5, 2024 and sell it today you would earn a total of  229.00  from holding The Connecticut Light or generate 4.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	97.6%
Values	Daily Returns

The Connecticut Light  vs.  Southern Company

Connecticut Light

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical indicators, Connecticut Light reported solid returns over the last few months and may actually be approaching a breakup point.

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Connecticut Light and Southern

The main advantage of trading using opposite Connecticut Light and Southern positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Connecticut Light 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.

The idea behind The Connecticut Light and Southern Company 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.