Correlation Between FC Investment and SM Energy

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

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

Diversification Opportunities for FC Investment and SM Energy

0.05

Correlation Coefficient

FC Investment  SM Energy

Significant diversification

The 3 months correlation between FCIT and 0KZA is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding FC Investment Trust and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and FC Investment 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 FC Investment Trust 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 FC Investment i.e., FC Investment and SM Energy go up and down completely randomly.

Pair Corralation between FC Investment and SM Energy

Assuming the 90 days trading horizon FC Investment is expected to generate 1.3 times less return on investment than SM Energy. But when comparing it to its historical volatility, FC Investment Trust is 2.11 times less risky than SM Energy. It trades about 0.44 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  3,761  in SM Energy Co on October 26, 2024 and sell it today you would earn a total of  347.00  from holding SM Energy Co or generate 9.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.0%
Values	Daily Returns

FC Investment Trust  vs.  SM Energy Co

FC Investment Trust

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in FC Investment Trust are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, FC Investment may actually be approaching a critical reversion point that can send shares even higher in February 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 comparatively stable basic indicators, SM Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with FC Investment and SM Energy

The main advantage of trading using opposite FC Investment and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FC Investment 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 FC Investment Trust 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.