Correlation Between SM Energy and Impax Environmental

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

Diversification Opportunities for SM Energy and Impax Environmental

0.7

Correlation Coefficient

SM Energy  Impax Environmental

Poor diversification

The 3 months correlation between 0KZA and Impax is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Impax Environmental Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impax Environmental 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 Impax Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impax Environmental has no effect on the direction of SM Energy i.e., SM Energy and Impax Environmental go up and down completely randomly.

Pair Corralation between SM Energy and Impax Environmental

Assuming the 90 days trading horizon SM Energy Co is expected to under-perform the Impax Environmental. In addition to that, SM Energy is 2.91 times more volatile than Impax Environmental Markets. It trades about -0.09 of its total potential returns per unit of risk. Impax Environmental Markets is currently generating about -0.05 per unit of volatility. If you would invest  37,198  in Impax Environmental Markets on December 21, 2024 and sell it today you would lose (1,248) from holding Impax Environmental Markets or give up 3.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.77%
Values	Daily Returns

SM Energy Co  vs.  Impax Environmental Markets

SM Energy

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Impax Environmental

Risk-Adjusted Performance

Very Weak

Over the last 90 days Impax Environmental Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Impax Environmental is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with SM Energy and Impax Environmental

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

The idea behind SM Energy Co and Impax Environmental Markets 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.