Correlation Between Sabine Royalty and SM Energy

Can any of the company-specific risk be diversified away by investing in both Sabine 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 Sabine 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 Sabine Royalty Trust and SM Energy Co, you can compare the effects of market volatilities on Sabine 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 Sabine Royalty with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sabine Royalty and SM Energy.

Diversification Opportunities for Sabine Royalty and SM Energy

-0.04

Correlation Coefficient

Sabine Royalty  SM Energy

Good diversification

The 3 months correlation between Sabine and SM Energy is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Sabine 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 Sabine 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 Sabine 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 Sabine Royalty i.e., Sabine Royalty and SM Energy go up and down completely randomly.

Pair Corralation between Sabine Royalty and SM Energy

Considering the 90-day investment horizon Sabine Royalty Trust is expected to generate 1.02 times more return on investment than SM Energy. However, Sabine Royalty is 1.02 times more volatile than SM Energy Co. It trades about 0.05 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.39 per unit of risk. If you would invest  6,282  in Sabine Royalty Trust on September 27, 2024 and sell it today you would earn a total of  117.00  from holding Sabine Royalty Trust or generate 1.86% return on investment over 90 days.

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

Sabine Royalty Trust  vs.  SM Energy Co

Sabine Royalty Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Sabine Royalty Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Sabine Royalty is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail 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 very healthy primary indicators, SM Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Sabine Royalty and SM Energy

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

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.