Correlation Between Expand Energy and SM Energy

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

Diversification Opportunities for Expand Energy and SM Energy

0.19

Correlation Coefficient

Expand Energy  SM Energy

Average diversification

The 3 months correlation between Expand and SM Energy is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Expand 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 Expand 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 Expand 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 Expand Energy i.e., Expand Energy and SM Energy go up and down completely randomly.

Pair Corralation between Expand Energy and SM Energy

Assuming the 90 days horizon Expand Energy is expected to generate 0.97 times more return on investment than SM Energy. However, Expand Energy is 1.03 times less risky than SM Energy. It trades about 0.22 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.05 per unit of risk. If you would invest  6,370  in Expand Energy on September 20, 2024 and sell it today you would earn a total of  2,475  from holding Expand Energy or generate 38.85% return on investment over 90 days.

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

Expand Energy  vs.  SM Energy Co

Expand Energy

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Expand Energy are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Expand Energy showed solid returns over the last few months and may actually be approaching a breakup point.

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 Expand Energy and SM Energy

The main advantage of trading using opposite Expand Energy and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Expand 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 Expand 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.