Correlation Between Southern Company and Azure Power

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

Diversification Opportunities for Southern Company and Azure Power

0.67

Correlation Coefficient

Southern Company  Azure Power

Poor diversification

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

Pair Corralation between Southern Company and Azure Power

Given the investment horizon of 90 days Southern Company Series is expected to generate 0.1 times more return on investment than Azure Power. However, Southern Company Series is 9.56 times less risky than Azure Power. It trades about 0.04 of its potential returns per unit of risk. Azure Power Global is currently generating about -0.13 per unit of risk. If you would invest  1,669  in Southern Company Series on September 6, 2024 and sell it today you would earn a total of  279.00  from holding Southern Company Series or generate 16.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	29.09%
Values	Daily Returns

Southern Company Series  vs.  Azure Power Global

Southern Company

Risk-Adjusted Performance

0 of 100

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 rather sound forward-looking indicators, Southern Company is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Azure Power Global

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Southern Company and Azure Power

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

The idea behind Southern Company Series and Azure Power Global 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.