Correlation Between Genesis Energy and Southern California

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

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

Diversification Opportunities for Genesis Energy and Southern California

0.49

Correlation Coefficient

Genesis Energy  Southern California

Very weak diversification

The 3 months correlation between Genesis and Southern is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Genesis Energy LP and Southern California Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California Gas and Genesis 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 Genesis Energy LP are associated (or correlated) with Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California Gas has no effect on the direction of Genesis Energy i.e., Genesis Energy and Southern California go up and down completely randomly.

Pair Corralation between Genesis Energy and Southern California

Considering the 90-day investment horizon Genesis Energy LP is expected to under-perform the Southern California. But the stock apears to be less risky and, when comparing its historical volatility, Genesis Energy LP is 1.23 times less risky than Southern California. The stock trades about -0.15 of its potential returns per unit of risk. The Southern California Gas is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,685  in Southern California Gas on September 15, 2024 and sell it today you would lose (10.00) from holding Southern California Gas or give up 0.37% of portfolio value over 90 days.

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

Genesis Energy LP  vs.  Southern California Gas

Genesis Energy LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genesis Energy LP 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 technical and fundamental indicators remain quite persistent which may send shares a bit higher in January 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Southern California is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Genesis Energy and Southern California

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

The idea behind Genesis Energy LP and Southern California Gas 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.