Correlation Between Omega Healthcare and SM Energy

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

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

Diversification Opportunities for Omega Healthcare and SM Energy

0.51

Correlation Coefficient

Omega Healthcare  SM Energy

Very weak diversification

The 3 months correlation between Omega and 0KZA is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Omega Healthcare Investors and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Omega Healthcare 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 Omega Healthcare Investors are associated (or correlated) with SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of Omega Healthcare i.e., Omega Healthcare and SM Energy go up and down completely randomly.

Pair Corralation between Omega Healthcare and SM Energy

Assuming the 90 days trading horizon Omega Healthcare Investors is expected to generate 0.6 times more return on investment than SM Energy. However, Omega Healthcare Investors is 1.66 times less risky than SM Energy. It trades about -0.03 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.05 per unit of risk. If you would invest  3,893  in Omega Healthcare Investors on October 8, 2024 and sell it today you would lose (107.00) from holding Omega Healthcare Investors or give up 2.75% of portfolio value over 90 days.

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

Omega Healthcare Investors  vs.  SM Energy Co

Omega Healthcare Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Omega Healthcare Investors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Omega Healthcare is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SM Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Omega Healthcare and SM Energy

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

The idea behind Omega Healthcare Investors and SM Energy Co 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.