Correlation Between SandRidge Energy and SM Energy

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

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

Diversification Opportunities for SandRidge Energy and SM Energy

0.41

Correlation Coefficient

SandRidge Energy  SM Energy

Very weak diversification

The 3 months correlation between SandRidge and SM Energy is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding SandRidge Energy and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and SandRidge 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 SandRidge Energy 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 SandRidge Energy i.e., SandRidge Energy and SM Energy go up and down completely randomly.

Pair Corralation between SandRidge Energy and SM Energy

Allowing for the 90-day total investment horizon SandRidge Energy is expected to generate 0.73 times more return on investment than SM Energy. However, SandRidge Energy is 1.37 times less risky than SM Energy. It trades about -0.16 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.32 per unit of risk. If you would invest  1,167  in SandRidge Energy on September 19, 2024 and sell it today you would lose (57.00) from holding SandRidge Energy or give up 4.88% of portfolio value over 90 days.

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

SandRidge Energy  vs.  SM Energy Co

SandRidge Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 SandRidge Energy and SM Energy

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