Correlation Between SM Energy and MG Plc

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

Diversification Opportunities for SM Energy and MG Plc

-0.63

Correlation Coefficient

SM Energy  MG Plc

Excellent diversification

The 3 months correlation between 0KZA and MNG is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and MG Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MG Plc 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 MG Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MG Plc has no effect on the direction of SM Energy i.e., SM Energy and MG Plc go up and down completely randomly.

Pair Corralation between SM Energy and MG Plc

Assuming the 90 days trading horizon SM Energy Co is expected to under-perform the MG Plc. In addition to that, SM Energy is 2.35 times more volatile than MG Plc. It trades about -0.09 of its total potential returns per unit of risk. MG Plc is currently generating about 0.16 per unit of volatility. If you would invest  19,330  in MG Plc on December 21, 2024 and sell it today you would earn a total of  2,370  from holding MG Plc or generate 12.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

SM Energy Co  vs.  MG Plc

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.

MG Plc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MG Plc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, MG Plc may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with SM Energy and MG Plc

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

The idea behind SM Energy Co and MG Plc 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.

Check out your portfolio center.

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.