Correlation Between Dorchester Minerals and SM Energy

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

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

Diversification Opportunities for Dorchester Minerals and SM Energy

0.3

Correlation Coefficient

Dorchester Minerals  SM Energy

Weak diversification

The 3 months correlation between Dorchester and SM Energy is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Dorchester Minerals LP and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Dorchester Minerals 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 Dorchester Minerals LP 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 Dorchester Minerals i.e., Dorchester Minerals and SM Energy go up and down completely randomly.

Pair Corralation between Dorchester Minerals and SM Energy

Given the investment horizon of 90 days Dorchester Minerals LP is expected to generate 0.57 times more return on investment than SM Energy. However, Dorchester Minerals LP is 1.76 times less risky than SM Energy. It trades about -0.08 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.36 per unit of risk. If you would invest  3,330  in Dorchester Minerals LP on September 20, 2024 and sell it today you would lose (75.00) from holding Dorchester Minerals LP or give up 2.25% of portfolio value over 90 days.

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

Dorchester Minerals LP  vs.  SM Energy Co

Dorchester Minerals

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dorchester Minerals LP are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, Dorchester Minerals may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 primary indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Dorchester Minerals and SM Energy

The main advantage of trading using opposite Dorchester Minerals and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dorchester Minerals 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 Dorchester Minerals LP 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.