Correlation Between PermRock Royalty and SM Energy

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

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

Diversification Opportunities for PermRock Royalty and SM Energy

0.81

Correlation Coefficient

PermRock Royalty  SM Energy

Very poor diversification

The 3 months correlation between PermRock and SM Energy is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding PermRock Royalty 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 PermRock Royalty 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 PermRock Royalty 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 PermRock Royalty i.e., PermRock Royalty and SM Energy go up and down completely randomly.

Pair Corralation between PermRock Royalty and SM Energy

Considering the 90-day investment horizon PermRock Royalty Trust is expected to under-perform the SM Energy. But the stock apears to be less risky and, when comparing its historical volatility, PermRock Royalty Trust is 1.1 times less risky than SM Energy. The stock trades about -0.05 of its potential returns per unit of risk. The SM Energy Co is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,858  in SM Energy Co on October 5, 2024 and sell it today you would earn a total of  200.00  from holding SM Energy Co or generate 5.18% return on investment over 90 days.

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

PermRock Royalty Trust  vs.  SM Energy Co

PermRock Royalty Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PermRock Royalty Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private 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 PermRock Royalty and SM Energy

The main advantage of trading using opposite PermRock Royalty and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PermRock Royalty 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 PermRock Royalty 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.