Correlation Between PPL and Sempra Energy

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

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

Diversification Opportunities for PPL and Sempra Energy

0.22

Correlation Coefficient

PPL  Sempra Energy

Modest diversification

The 3 months correlation between PPL and Sempra is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding PPL Corp. and Sempra Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sempra Energy and PPL 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 PPL Corporation 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 PPL i.e., PPL and Sempra Energy go up and down completely randomly.

Pair Corralation between PPL and Sempra Energy

Considering the 90-day investment horizon PPL Corporation is expected to generate 0.98 times more return on investment than Sempra Energy. However, PPL Corporation is 1.02 times less risky than Sempra Energy. It trades about 0.02 of its potential returns per unit of risk. Sempra Energy is currently generating about 0.0 per unit of risk. If you would invest  2,668  in PPL Corporation on January 24, 2024 and sell it today you would earn a total of  69.00  from holding PPL Corporation or generate 2.59% return on investment over 90 days.

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

PPL Corp.  vs.  Sempra Energy

PPL Corporation

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PPL Corporation are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, PPL may actually be approaching a critical reversion point that can send shares even higher in May 2024.

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 PPL and Sempra Energy

The main advantage of trading using opposite PPL and Sempra Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PPL 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 PPL Corporation 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.