Correlation Between SM Energy and Overstock

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

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

Diversification Opportunities for SM Energy and Overstock

-0.42

Correlation Coefficient

SM Energy  Overstock

Very good diversification

The 3 months correlation between 0KZA and Overstock is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Overstock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overstock and SM 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 SM Energy Co are associated (or correlated) with Overstock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overstock has no effect on the direction of SM Energy i.e., SM Energy and Overstock go up and down completely randomly.

Pair Corralation between SM Energy and Overstock

Assuming the 90 days trading horizon SM Energy Co is expected to generate 0.44 times more return on investment than Overstock. However, SM Energy Co is 2.29 times less risky than Overstock. It trades about 0.05 of its potential returns per unit of risk. Overstock is currently generating about -0.15 per unit of risk. If you would invest  3,880  in SM Energy Co on September 12, 2024 and sell it today you would earn a total of  235.00  from holding SM Energy Co or generate 6.06% return on investment over 90 days.

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

SM Energy Co  vs.  Overstock

SM Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SM Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Overstock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Overstock has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with SM Energy and Overstock

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

The idea behind SM Energy Co and Overstock 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.