Correlation Between California Water and Sempra Energy
Can any of the company-specific risk be diversified away by investing in both California 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 California 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 California Water Service and Sempra Energy, you can compare the effects of market volatilities on California 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 California Water with a short position of Sempra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of California Water and Sempra Energy.
Diversification Opportunities for California Water and Sempra Energy
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between California and Sempra is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding California Water Service and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and California 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 California Water Service 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 California Water i.e., California Water and Sempra Energy go up and down completely randomly.
Pair Corralation between California Water and Sempra Energy
Considering the 90-day investment horizon California Water Service is expected to under-perform the Sempra Energy. But the stock apears to be less risky and, when comparing its historical volatility, California Water Service is 1.39 times less risky than Sempra Energy. The stock trades about -0.07 of its potential returns per unit of risk. The 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 Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
California Water Service vs. Sempra Energy
Performance |
| Timeline |
| California Water Service |
| Sempra Energy |
California Water and Sempra Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with California Water and Sempra Energy
The main advantage of trading using opposite California Water and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if California 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.| California Water vs. SJW Group Common | California Water vs. Artesian Resources | California Water vs. The York Water | California Water vs. American States Water |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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