Correlation Between Allete and Sempra Energy

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

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

Diversification Opportunities for Allete and Sempra Energy

-0.62

Correlation Coefficient

Allete  Sempra Energy

Excellent diversification

The 3 months correlation between Allete and Sempra is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Allete Inc and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and Allete 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 Allete Inc 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 Allete i.e., Allete and Sempra Energy go up and down completely randomly.

Pair Corralation between Allete and Sempra Energy

Considering the 90-day investment horizon Allete Inc is expected to generate 0.06 times more return on investment than Sempra Energy. However, Allete Inc is 15.75 times less risky than Sempra Energy. It trades about 0.23 of its potential returns per unit of risk. Sempra Energy is currently generating about -0.14 per unit of risk. If you would invest  6,483  in Allete Inc on November 29, 2024 and sell it today you would earn a total of  84.00  from holding Allete Inc or generate 1.3% return on investment over 90 days.

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

Allete Inc  vs.  Sempra Energy

Allete Inc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sempra Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sempra Energy 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 basic indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Allete and Sempra Energy

The main advantage of trading using opposite Allete and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Allete 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 Allete Inc 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.