Correlation Between Southern Company and Carlyle

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

Diversification Opportunities for Southern Company and Carlyle

0.76

Correlation Coefficient

Southern Company  Carlyle

Poor diversification

The 3 months correlation between Southern and Carlyle is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Southern Company Series and The Carlyle Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carlyle Group 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 Carlyle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carlyle Group has no effect on the direction of Southern Company i.e., Southern Company and Carlyle go up and down completely randomly.

Pair Corralation between Southern Company and Carlyle

Given the investment horizon of 90 days Southern Company Series is expected to under-perform the Carlyle. But the stock apears to be less risky and, when comparing its historical volatility, Southern Company Series is 1.39 times less risky than Carlyle. The stock trades about -0.25 of its potential returns per unit of risk. The The Carlyle Group is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  1,953  in The Carlyle Group on September 17, 2024 and sell it today you would lose (120.00) from holding The Carlyle Group or give up 6.14% of portfolio value over 90 days.

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

Southern Company Series  vs.  The Carlyle Group

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 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.

Carlyle Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Carlyle Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental drivers, Carlyle is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Southern Company and Carlyle

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

The idea behind Southern Company Series and The Carlyle Group 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.