Correlation Between Imperial Oil and SM Energy

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

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

Diversification Opportunities for Imperial Oil and SM Energy

0.86

Correlation Coefficient

Imperial Oil  SM Energy

Very poor diversification

The 3 months correlation between Imperial and SM Energy is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Oil and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Imperial Oil 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 Imperial Oil 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 Imperial Oil i.e., Imperial Oil and SM Energy go up and down completely randomly.

Pair Corralation between Imperial Oil and SM Energy

Considering the 90-day investment horizon Imperial Oil is expected to under-perform the SM Energy. In addition to that, Imperial Oil is 1.11 times more volatile than SM Energy Co. It trades about -0.34 of its total potential returns per unit of risk. SM Energy Co is currently generating about 0.02 per unit of volatility. If you would invest  4,069  in SM Energy Co on October 9, 2024 and sell it today you would earn a total of  17.00  from holding SM Energy Co or generate 0.42% return on investment over 90 days.

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

Imperial Oil  vs.  SM Energy Co

Imperial Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Oil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 Imperial Oil and SM Energy

The main advantage of trading using opposite Imperial Oil and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Oil 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 Imperial Oil 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.