Correlation Between Vaalco Energy and SM Energy

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

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

Diversification Opportunities for Vaalco Energy and SM Energy

0.73

Correlation Coefficient

Vaalco Energy  SM Energy

Poor diversification

The 3 months correlation between Vaalco and SM Energy is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Vaalco Energy and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Vaalco 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 Vaalco Energy 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 Vaalco Energy i.e., Vaalco Energy and SM Energy go up and down completely randomly.

Pair Corralation between Vaalco Energy and SM Energy

Considering the 90-day investment horizon Vaalco Energy is expected to generate 0.91 times more return on investment than SM Energy. However, Vaalco Energy is 1.1 times less risky than SM Energy. It trades about -0.15 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.22 per unit of risk. If you would invest  512.00  in Vaalco Energy on November 29, 2024 and sell it today you would lose (96.00) from holding Vaalco Energy or give up 18.75% of portfolio value over 90 days.

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

Vaalco Energy  vs.  SM Energy Co

Vaalco Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vaalco Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 unsteady performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Vaalco Energy and SM Energy

The main advantage of trading using opposite Vaalco Energy and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vaalco Energy 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 Vaalco Energy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.