Correlation Between AES and Sempra Energy

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

By analyzing existing cross correlation between The AES and Sempra Energy, you can compare the effects of market volatilities on AES and Sempra Energy 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 AES with a short position of Sempra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of AES and Sempra Energy.

Diversification Opportunities for AES and Sempra Energy

-0.79

Correlation Coefficient

AES  Sempra Energy

Pay attention - limited upside

The 3 months correlation between AES and Sempra is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and AES 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 The AES are associated (or correlated) with Sempra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sempra Energy has no effect on the direction of AES i.e., AES and Sempra Energy go up and down completely randomly.

Pair Corralation between AES and Sempra Energy

Considering the 90-day investment horizon The AES is expected to under-perform the Sempra Energy. In addition to that, AES is 2.0 times more volatile than Sempra Energy. It trades about -0.13 of its total potential returns per unit of risk. Sempra Energy is currently generating about 0.17 per unit of volatility. If you would invest  8,201  in Sempra Energy on August 31, 2024 and sell it today you would earn a total of  1,227  from holding Sempra Energy or generate 14.96% return on investment over 90 days.

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

The AES  vs.  Sempra Energy

AES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The AES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Sempra Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Sempra Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AES and Sempra Energy

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

The idea behind The AES and Sempra Energy 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.