Correlation Between Southern and Duke Energy

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

Diversification Opportunities for Southern and Duke Energy

0.72

Correlation Coefficient

Southern  Duke Energy

Poor diversification

The 3 months correlation between Southern and Duke is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company and Duke Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Duke Energy Corp 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 Duke Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Duke Energy Corp has no effect on the direction of Southern i.e., Southern and Duke Energy go up and down completely randomly.

Pair Corralation between Southern and Duke Energy

Allowing for the 90-day total investment horizon Southern Company is expected to under-perform the Duke Energy. In addition to that, Southern is 2.33 times more volatile than Duke Energy Corp. It trades about -0.1 of its total potential returns per unit of risk. Duke Energy Corp is currently generating about -0.09 per unit of volatility. If you would invest  2,470  in Duke Energy Corp on September 27, 2024 and sell it today you would lose (62.00) from holding Duke Energy Corp or give up 2.51% of portfolio value over 90 days.

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

Southern Company  vs.  Duke Energy Corp

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 latest unsteady performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Duke Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking signals, Duke Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southern and Duke Energy

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

The idea behind Southern Company and Duke Energy Corp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.