Correlation Between Ares Commercial and Sempra Energy

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

By analyzing existing cross correlation between Ares Commercial Real and Sempra Energy, you can compare the effects of market volatilities on Ares Commercial 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 Ares Commercial with a short position of Sempra Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ares Commercial and Sempra Energy.

Diversification Opportunities for Ares Commercial and Sempra Energy

0.38

Correlation Coefficient

Ares Commercial  Sempra Energy

Weak diversification

The 3 months correlation between Ares and Sempra is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Ares Commercial Real and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and Ares Commercial 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 Ares Commercial Real 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 Ares Commercial i.e., Ares Commercial and Sempra Energy go up and down completely randomly.

Pair Corralation between Ares Commercial and Sempra Energy

Given the investment horizon of 90 days Ares Commercial Real is expected to under-perform the Sempra Energy. In addition to that, Ares Commercial is 1.84 times more volatile than Sempra Energy. It trades about -0.04 of its total potential returns per unit of risk. Sempra Energy is currently generating about -0.02 per unit of volatility. If you would invest  7,913  in Sempra Energy on January 24, 2024 and sell it today you would lose (800.00) from holding Sempra Energy or give up 10.11% of portfolio value over 90 days.

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

Ares Commercial Real  vs.  Sempra Energy

Ares Commercial Real

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ares Commercial Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Sempra Energy

Risk-Adjusted Performance

2 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Ares Commercial and Sempra Energy

The main advantage of trading using opposite Ares Commercial and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ares Commercial 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.

The idea behind Ares Commercial Real and Sempra Energy 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.