Correlation Between Aeorema Communications and SM Energy

Can any of the company-specific risk be diversified away by investing in both Aeorema Communications and SM Energy 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 Aeorema Communications and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aeorema Communications Plc and SM Energy Co, you can compare the effects of market volatilities on Aeorema Communications and SM Energy 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 Aeorema Communications with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aeorema Communications and SM Energy.

Diversification Opportunities for Aeorema Communications and SM Energy

-0.67

Correlation Coefficient

Aeorema Communications  SM Energy

Excellent diversification

The 3 months correlation between Aeorema and 0KZA is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Aeorema Communications 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 Aeorema Communications Plc are associated (or correlated) with SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of Aeorema Communications i.e., Aeorema Communications and SM Energy go up and down completely randomly.

Pair Corralation between Aeorema Communications and SM Energy

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the SM Energy. In addition to that, Aeorema Communications is 1.23 times more volatile than SM Energy Co. It trades about -0.21 of its total potential returns per unit of risk. SM Energy Co is currently generating about 0.05 per unit of volatility. If you would invest  4,132  in SM Energy Co on October 10, 2024 and sell it today you would earn a total of  67.00  from holding SM Energy Co or generate 1.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Aeorema Communications Plc  vs.  SM Energy Co

Aeorema Communications

Risk-Adjusted Performance

0 of 100

Very Weak

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

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.

Pair Trading with Aeorema Communications and SM Energy

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

The idea behind Aeorema Communications Plc and SM Energy Co 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.