Correlation Between Southern and ATT

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

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

Diversification Opportunities for Southern and ATT

0.23

Correlation Coefficient

Southern  ATT

Modest diversification

The 3 months correlation between Southern and ATT is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Southern Co and ATT Inc ELKS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ATT Inc ELKS 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 ATT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ATT Inc ELKS has no effect on the direction of Southern i.e., Southern and ATT go up and down completely randomly.

Pair Corralation between Southern and ATT

Given the investment horizon of 90 days Southern Co is expected to under-perform the ATT. In addition to that, Southern is 1.07 times more volatile than ATT Inc ELKS. It trades about -0.07 of its total potential returns per unit of risk. ATT Inc ELKS is currently generating about 0.06 per unit of volatility. If you would invest  2,460  in ATT Inc ELKS on September 2, 2024 and sell it today you would earn a total of  54.00  from holding ATT Inc ELKS or generate 2.2% return on investment over 90 days.

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

Southern Co  vs.  ATT Inc ELKS

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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

ATT Inc ELKS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc ELKS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, ATT is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Southern and ATT

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

The idea behind Southern Co and ATT Inc ELKS 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..