Correlation Between American Water and Sempra Energy
Can any of the company-specific risk be diversified away by investing in both American Water 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 American Water and Sempra Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Water Works and Sempra Energy, you can compare the effects of market volatilities on American Water 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 American Water with a short position of Sempra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Water and Sempra Energy.
Diversification Opportunities for American Water and Sempra Energy
-0.5 | Correlation Coefficient |
Very good diversification
The 3 months correlation between American and Sempra is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding American Water Works and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and American Water 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 American Water Works 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 American Water i.e., American Water and Sempra Energy go up and down completely randomly.
Pair Corralation between American Water and Sempra Energy
Considering the 90-day investment horizon American Water Works is expected to under-perform the Sempra Energy. But the stock apears to be less risky and, when comparing its historical volatility, American Water Works is 1.46 times less risky than Sempra Energy. The stock trades about -0.03 of its potential returns per unit of risk. The Sempra Energy is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 8,517 in Sempra Energy on August 28, 2024 and sell it today you would earn a total of 960.00 from holding Sempra Energy or generate 11.27% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Water Works vs. Sempra Energy
Performance |
| Timeline |
| American Water Works |
| Sempra Energy |
American Water and Sempra Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Water and Sempra Energy
The main advantage of trading using opposite American Water and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Water 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.| American Water vs. Cadiz Inc | American Water vs. Artesian Resources | American Water vs. Global Water Resources | American Water vs. Parke Bancorp |
| 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.
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