Correlation Between Energy Of and Sempra Energy

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

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

Diversification Opportunities for Energy Of and Sempra Energy

-0.38

Correlation Coefficient

Energy Of  Sempra Energy

Very good diversification

The 3 months correlation between Energy and Sempra is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Energy of Minas and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and Energy Of 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 Energy of Minas 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 Energy Of i.e., Energy Of and Sempra Energy go up and down completely randomly.

Pair Corralation between Energy Of and Sempra Energy

Assuming the 90 days horizon Energy of Minas is expected to generate 0.89 times more return on investment than Sempra Energy. However, Energy of Minas is 1.12 times less risky than Sempra Energy. It trades about 0.06 of its potential returns per unit of risk. Sempra Energy is currently generating about -0.11 per unit of risk. If you would invest  234.00  in Energy of Minas on December 26, 2024 and sell it today you would earn a total of  19.00  from holding Energy of Minas or generate 8.12% return on investment over 90 days.

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

Energy of Minas  vs.  Sempra Energy

Energy of Minas

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Energy of Minas are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Energy Of may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Energy Of and Sempra Energy

The main advantage of trading using opposite Energy Of and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Of 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 Energy of Minas 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.