Correlation Between SM Energy and EJF Investments

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

Diversification Opportunities for SM Energy and EJF Investments

-0.69

Correlation Coefficient

SM Energy  EJF Investments

Excellent diversification

The 3 months correlation between 0KZA and EJF is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and EJF Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EJF Investments 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 EJF Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EJF Investments has no effect on the direction of SM Energy i.e., SM Energy and EJF Investments go up and down completely randomly.

Pair Corralation between SM Energy and EJF Investments

Assuming the 90 days trading horizon SM Energy Co is expected to generate 1.84 times more return on investment than EJF Investments. However, SM Energy is 1.84 times more volatile than EJF Investments. It trades about 0.03 of its potential returns per unit of risk. EJF Investments is currently generating about 0.0 per unit of risk. If you would invest  3,239  in SM Energy Co on October 10, 2024 and sell it today you would earn a total of  960.00  from holding SM Energy Co or generate 29.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.37%
Values	Daily Returns

SM Energy Co  vs.  EJF Investments

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 comparatively stable basic indicators, SM Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

EJF Investments

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in EJF Investments are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, EJF Investments may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SM Energy and EJF Investments

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

The idea behind SM Energy Co and EJF Investments 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.