Correlation Between Sempra Energy and Iberdrola

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

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

Diversification Opportunities for Sempra Energy and Iberdrola

-0.84

Correlation Coefficient

Sempra Energy  Iberdrola

Pay attention - limited upside

The 3 months correlation between Sempra and Iberdrola is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Sempra Energy and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Sempra Energy 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 Sempra Energy are associated (or correlated) with Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of Sempra Energy i.e., Sempra Energy and Iberdrola go up and down completely randomly.

Pair Corralation between Sempra Energy and Iberdrola

Considering the 90-day investment horizon Sempra Energy is expected to generate 0.9 times more return on investment than Iberdrola. However, Sempra Energy is 1.11 times less risky than Iberdrola. It trades about 0.11 of its potential returns per unit of risk. Iberdrola SA is currently generating about -0.09 per unit of risk. If you would invest  8,054  in Sempra Energy on September 12, 2024 and sell it today you would earn a total of  744.50  from holding Sempra Energy or generate 9.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Sempra Energy  vs.  Iberdrola SA

Sempra Energy

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra Energy are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Sempra Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Sempra Energy and Iberdrola

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

The idea behind Sempra Energy and Iberdrola SA 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.