Correlation Between Southern BancShares and EDP Energias

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

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

Diversification Opportunities for Southern BancShares and EDP Energias

0.67

Correlation Coefficient

Southern BancShares  EDP Energias

Poor diversification

The 3 months correlation between Southern and EDP is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Southern BancShares PFD and EDP Energias in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Energias and Southern BancShares 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 BancShares PFD are associated (or correlated) with EDP Energias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Energias has no effect on the direction of Southern BancShares i.e., Southern BancShares and EDP Energias go up and down completely randomly.

Pair Corralation between Southern BancShares and EDP Energias

Assuming the 90 days horizon Southern BancShares PFD is expected to generate 0.24 times more return on investment than EDP Energias. However, Southern BancShares PFD is 4.24 times less risky than EDP Energias. It trades about -0.09 of its potential returns per unit of risk. EDP Energias is currently generating about -0.24 per unit of risk. If you would invest  1,310  in Southern BancShares PFD on September 13, 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

Southern BancShares PFD  vs.  EDP Energias

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.

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.

Pair Trading with Southern BancShares and EDP Energias

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

The idea behind Southern BancShares PFD and EDP Energias 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.