Correlation Between EDP Energias and Southern BancShares

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

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

Diversification Opportunities for EDP Energias and Southern BancShares

0.74

Correlation Coefficient

EDP Energias  Southern BancShares

Poor diversification

The 3 months correlation between EDP and Southern is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias and Southern BancShares PFD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern BancShares PFD and EDP Energias 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 EDP Energias are associated (or correlated) with Southern BancShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern BancShares PFD has no effect on the direction of EDP Energias i.e., EDP Energias and Southern BancShares go up and down completely randomly.

Pair Corralation between EDP Energias and Southern BancShares

Assuming the 90 days horizon EDP Energias is expected to under-perform the Southern BancShares. In addition to that, EDP Energias is 4.16 times more volatile than Southern BancShares PFD. It trades about -0.22 of its total potential returns per unit of risk. Southern BancShares PFD is currently generating about -0.09 per unit of volatility. If you would invest  1,310  in Southern BancShares PFD on September 14, 2024 and sell it today you would lose (38.00) from holding Southern BancShares PFD or give up 2.9% of portfolio value over 90 days.

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

EDP Energias  vs.  Southern BancShares PFD

EDP Energias

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Southern BancShares PFD

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with EDP Energias and Southern BancShares

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

The idea behind EDP Energias and Southern BancShares PFD 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.