Correlation Between SM Energy and Lindsell Train

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

Diversification Opportunities for SM Energy and Lindsell Train

-0.45

Correlation Coefficient

SM Energy  Lindsell Train

Very good diversification

The 3 months correlation between 0KZA and Lindsell is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Lindsell Train Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lindsell Train Investment 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 Lindsell Train. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lindsell Train Investment has no effect on the direction of SM Energy i.e., SM Energy and Lindsell Train go up and down completely randomly.

Pair Corralation between SM Energy and Lindsell Train

Assuming the 90 days trading horizon SM Energy Co is expected to generate 1.81 times more return on investment than Lindsell Train. However, SM Energy is 1.81 times more volatile than Lindsell Train Investment. It trades about 0.04 of its potential returns per unit of risk. Lindsell Train Investment is currently generating about -0.02 per unit of risk. If you would invest  3,036  in SM Energy Co on October 25, 2024 and sell it today you would earn a total of  1,159  from holding SM Energy Co or generate 38.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.57%
Values	Daily Returns

SM Energy Co  vs.  Lindsell Train Investment

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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Lindsell Train Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lindsell Train Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Lindsell Train exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Energy and Lindsell Train

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

The idea behind SM Energy Co and Lindsell Train Investment 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.