Correlation Between Sempra Energy and Amazon

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

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

Diversification Opportunities for Sempra Energy and Amazon

-0.45

Correlation Coefficient

Sempra Energy  Amazon

Very good diversification

The 3 months correlation between Sempra and Amazon is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Sempra Energy and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc and Sempra Energy 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 Sempra Energy are associated (or correlated) with Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Sempra Energy i.e., Sempra Energy and Amazon go up and down completely randomly.

Pair Corralation between Sempra Energy and Amazon

Considering the 90-day investment horizon Sempra Energy is expected to under-perform the Amazon. But the stock apears to be less risky and, when comparing its historical volatility, Sempra Energy is 1.78 times less risky than Amazon. The stock trades about 0.0 of its potential returns per unit of risk. The Amazon Inc is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  12,450  in Amazon Inc on January 20, 2024 and sell it today you would earn a total of  5,013  from holding Amazon Inc or generate 40.27% return on investment over 90 days.

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

Sempra Energy  vs.  Amazon Inc

Sempra Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sempra Energy has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Amazon Inc

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Amazon displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sempra Energy and Amazon

The main advantage of trading using opposite Sempra Energy and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sempra Energy position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.

The idea behind Sempra Energy and Amazon Inc 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.