Correlation Between Sempra Energy and Novavax

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

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

Diversification Opportunities for Sempra Energy and Novavax

0.13

Correlation Coefficient

Sempra Energy  Novavax

Average diversification

The 3 months correlation between Sempra and Novavax is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Sempra Energy and Novavax in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novavax 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 Novavax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novavax has no effect on the direction of Sempra Energy i.e., Sempra Energy and Novavax go up and down completely randomly.

Pair Corralation between Sempra Energy and Novavax

Considering the 90-day investment horizon Sempra Energy is expected to generate 0.73 times more return on investment than Novavax. However, Sempra Energy is 1.37 times less risky than Novavax. It trades about 0.1 of its potential returns per unit of risk. Novavax is currently generating about -0.39 per unit of risk. If you would invest  6,963  in Sempra Energy on January 24, 2024 and sell it today you would earn a total of  189.00  from holding Sempra Energy or generate 2.71% return on investment over 90 days.

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

Sempra Energy  vs.  Novavax

Sempra Energy

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sempra Energy are ranked lower than 3 (%) 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.

Novavax

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Novavax are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Novavax may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Sempra Energy and Novavax

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

The idea behind Sempra Energy and Novavax 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.