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
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Allete and Sempra is 0.85. 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 is expected to generate 8.28 times less return on investment than Sempra Energy. But when comparing it to its historical volatility, Allete Inc is 5.09 times less risky than Sempra Energy. It trades about 0.14 of its potential returns per unit of risk. Sempra Energy is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 8,596 in Sempra Energy on August 24, 2024 and sell it today you would earn a total of 873.00 from holding Sempra Energy or generate 10.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Allete Inc vs. Sempra Energy
Performance |
| Timeline |
| Allete Inc |
| Sempra Energy |
Allete and Sempra Energy Volatility Contrast
Predicted Return Density |
| Returns |
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.| Allete vs. Avista | Allete vs. Black Hills | Allete vs. Montauk Renewables | Allete vs. Companhia Paranaense de |
| Sempra Energy vs. Allete Inc | Sempra Energy vs. Avista | Sempra Energy vs. NorthWestern | Sempra Energy vs. The AES |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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