Correlation Between SM Energy and Light Science

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

Diversification Opportunities for SM Energy and Light Science

-0.6

Correlation Coefficient

SM Energy  Light Science

Excellent diversification

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

Pair Corralation between SM Energy and Light Science

Assuming the 90 days trading horizon SM Energy Co is expected to under-perform the Light Science. But the stock apears to be less risky and, when comparing its historical volatility, SM Energy Co is 1.68 times less risky than Light Science. The stock trades about -0.01 of its potential returns per unit of risk. The Light Science Technologies is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  255.00  in Light Science Technologies on October 6, 2024 and sell it today you would earn a total of  5.00  from holding Light Science Technologies or generate 1.96% return on investment over 90 days.

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

SM Energy Co  vs.  Light Science Technologies

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 unsteady 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.

Light Science Techno

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Light Science Technologies are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Light Science 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 Light Science

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

The idea behind SM Energy Co and Light Science Technologies 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.