Correlation Between PXP Energy and SM Investments

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

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

Diversification Opportunities for PXP Energy and SM Investments

0.84

Correlation Coefficient

PXP Energy  SM Investments

Very poor diversification

The 3 months correlation between PXP and SM Investments is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding PXP Energy Corp and SM Investments Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Investments Corp and PXP 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 PXP Energy Corp are associated (or correlated) with SM Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Investments Corp has no effect on the direction of PXP Energy i.e., PXP Energy and SM Investments go up and down completely randomly.

Pair Corralation between PXP Energy and SM Investments

Assuming the 90 days trading horizon PXP Energy Corp is expected to under-perform the SM Investments. In addition to that, PXP Energy is 2.38 times more volatile than SM Investments Corp. It trades about -0.03 of its total potential returns per unit of risk. SM Investments Corp is currently generating about 0.0 per unit of volatility. If you would invest  93,335  in SM Investments Corp on October 11, 2024 and sell it today you would lose (5,285) from holding SM Investments Corp or give up 5.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.79%
Values	Daily Returns

PXP Energy Corp  vs.  SM Investments Corp

PXP Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PXP Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, PXP Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

SM Investments Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Investments Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with PXP Energy and SM Investments

The main advantage of trading using opposite PXP Energy and SM Investments positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PXP Energy position performs unexpectedly, SM Investments 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 Investments will offset losses from the drop in SM Investments' long position.

The idea behind PXP Energy Corp and SM Investments Corp 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.