Correlation Between SM Energy and 70GD

Can any of the company-specific risk be diversified away by investing in both SM Energy and 70GD 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 70GD 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 70GD, you can compare the effects of market volatilities on SM Energy and 70GD 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 70GD. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and 70GD.

Diversification Opportunities for SM Energy and 70GD

-0.6

Correlation Coefficient

SM Energy  70GD

Excellent diversification

The 3 months correlation between 0KZA and 70GD is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and 70GD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 70GD 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 70GD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 70GD has no effect on the direction of SM Energy i.e., SM Energy and 70GD go up and down completely randomly.

Pair Corralation between SM Energy and 70GD

Assuming the 90 days trading horizon SM Energy Co is expected to under-perform the 70GD. In addition to that, SM Energy is 2.43 times more volatile than 70GD. It trades about -0.36 of its total potential returns per unit of risk. 70GD is currently generating about 0.22 per unit of volatility. If you would invest  68.00  in 70GD on September 24, 2024 and sell it today you would earn a total of  3.00  from holding 70GD or generate 4.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

SM Energy Co  vs.  70GD

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.

70GD

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in 70GD are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, 70GD is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SM Energy and 70GD

The main advantage of trading using opposite SM Energy and 70GD positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, 70GD 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 70GD will offset losses from the drop in 70GD's long position.

The idea behind SM Energy Co and 70GD 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.