Correlation Between Southern Company and Aegon Funding

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Can any of the company-specific risk be diversified away by investing in both Southern Company and Aegon Funding 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 Company and Aegon Funding into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southern Company Series and Aegon Funding, you can compare the effects of market volatilities on Southern Company and Aegon Funding 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 Company with a short position of Aegon Funding. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southern Company and Aegon Funding.

Diversification Opportunities for Southern Company and Aegon Funding

0.9
  Correlation Coefficient

Almost no diversification

The 3 months correlation between Southern and Aegon is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and Aegon Funding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aegon Funding and Southern Company 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 Series are associated (or correlated) with Aegon Funding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aegon Funding has no effect on the direction of Southern Company i.e., Southern Company and Aegon Funding go up and down completely randomly.

Pair Corralation between Southern Company and Aegon Funding

Given the investment horizon of 90 days Southern Company Series is expected to under-perform the Aegon Funding. But the stock apears to be less risky and, when comparing its historical volatility, Southern Company Series is 1.13 times less risky than Aegon Funding. The stock trades about -0.25 of its potential returns per unit of risk. The Aegon Funding is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  2,239  in Aegon Funding on September 18, 2024 and sell it today you would lose (159.00) from holding Aegon Funding or give up 7.1% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Strong
Accuracy100.0%
ValuesDaily Returns

Southern Company Series  vs.  Aegon Funding

 Performance 
       Timeline  
Southern Company 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Southern Company Series has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward-looking indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.
Aegon Funding 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aegon Funding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Southern Company and Aegon Funding Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Southern Company and Aegon Funding

The main advantage of trading using opposite Southern Company and Aegon Funding positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern Company position performs unexpectedly, Aegon Funding 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 Aegon Funding will offset losses from the drop in Aegon Funding's long position.
The idea behind Southern Company Series and Aegon Funding 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.

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