Correlation Between Neometals and SM Energy

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

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

Diversification Opportunities for Neometals and SM Energy

0.23

Correlation Coefficient

Neometals  SM Energy

Modest diversification

The 3 months correlation between Neometals and 0KZA is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Neometals and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Neometals 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 Neometals 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 Neometals i.e., Neometals and SM Energy go up and down completely randomly.

Pair Corralation between Neometals and SM Energy

Assuming the 90 days trading horizon Neometals is expected to generate 1.68 times more return on investment than SM Energy. However, Neometals is 1.68 times more volatile than SM Energy Co. It trades about 0.09 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  400.00  in Neometals on September 12, 2024 and sell it today you would earn a total of  75.00  from holding Neometals or generate 18.75% return on investment over 90 days.

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

Neometals  vs.  SM Energy Co

Neometals

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Neometals are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Neometals exhibited solid returns over the last few months and may actually be approaching a breakup point.

SM Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, SM Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Neometals and SM Energy

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

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.