Correlation Between Southern and South Jersey

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

By analyzing existing cross correlation between Southern Co and South Jersey Industries, you can compare the effects of market volatilities on Southern and South Jersey 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 South Jersey. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern and South Jersey.

Diversification Opportunities for Southern and South Jersey

0.63

Correlation Coefficient

Southern  South Jersey

Poor diversification

The 3 months correlation between Southern and South is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Southern Co and South Jersey Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on South Jersey Industries 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 Co are associated (or correlated) with South Jersey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of South Jersey Industries has no effect on the direction of Southern i.e., Southern and South Jersey go up and down completely randomly.

Pair Corralation between Southern and South Jersey

Given the investment horizon of 90 days Southern Co is expected to generate 2.09 times more return on investment than South Jersey. However, Southern is 2.09 times more volatile than South Jersey Industries. It trades about 0.02 of its potential returns per unit of risk. South Jersey Industries is currently generating about -0.19 per unit of risk. If you would invest  2,179  in Southern Co on September 12, 2024 and sell it today you would earn a total of  125.00  from holding Southern Co or generate 5.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	6.11%
Values	Daily Returns

Southern Co  vs.  South Jersey Industries

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking indicators, Southern is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

South Jersey Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days South Jersey Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable forward indicators, South Jersey is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Southern and South Jersey

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

The idea behind Southern Co and South Jersey Industries 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.

Check out your portfolio center.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.