Correlation Between Sempra Energy and EuroSite Power

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

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

Diversification Opportunities for Sempra Energy and EuroSite Power

0.01

Correlation Coefficient

Sempra Energy  EuroSite Power

Significant diversification

The 3 months correlation between Sempra and EuroSite is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sempra Energy and EuroSite Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EuroSite Power 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 EuroSite Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EuroSite Power has no effect on the direction of Sempra Energy i.e., Sempra Energy and EuroSite Power go up and down completely randomly.

Pair Corralation between Sempra Energy and EuroSite Power

Considering the 90-day investment horizon Sempra Energy is expected to generate 0.15 times more return on investment than EuroSite Power. However, Sempra Energy is 6.49 times less risky than EuroSite Power. It trades about -0.2 of its potential returns per unit of risk. EuroSite Power is currently generating about -0.09 per unit of risk. If you would invest  9,158  in Sempra Energy on September 13, 2024 and sell it today you would lose (417.00) from holding Sempra Energy or give up 4.55% of portfolio value over 90 days.

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

Sempra Energy  vs.  EuroSite Power

Sempra Energy

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra Energy are ranked lower than 6 (%) 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.

EuroSite Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuroSite Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively weak basic indicators, EuroSite Power may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Sempra Energy and EuroSite Power

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

The idea behind Sempra Energy and EuroSite Power 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.