Correlation Between Sempra Energy and Montauk Renewables

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

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

Diversification Opportunities for Sempra Energy and Montauk Renewables

-0.32

Correlation Coefficient

Sempra Energy  Montauk Renewables

Very good diversification

The 3 months correlation between Sempra and Montauk is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Sempra Energy and Montauk Renewables in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Montauk Renewables 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 Montauk Renewables. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Montauk Renewables has no effect on the direction of Sempra Energy i.e., Sempra Energy and Montauk Renewables go up and down completely randomly.

Pair Corralation between Sempra Energy and Montauk Renewables

Considering the 90-day investment horizon Sempra Energy is expected to generate 0.29 times more return on investment than Montauk Renewables. However, Sempra Energy is 3.4 times less risky than Montauk Renewables. It trades about 0.03 of its potential returns per unit of risk. Montauk Renewables is currently generating about -0.02 per unit of risk. If you would invest  7,498  in Sempra Energy on October 23, 2024 and sell it today you would earn a total of  1,020  from holding Sempra Energy or generate 13.6% return on investment over 90 days.

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

Sempra Energy  vs.  Montauk Renewables

Sempra Energy

Risk-Adjusted Performance

0 of 100

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 rather sound basic indicators, Sempra Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Montauk Renewables

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Montauk Renewables has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Sempra Energy and Montauk Renewables

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

The idea behind Sempra Energy and Montauk Renewables 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.