Correlation Between SM Energy and Epsilon Energy

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

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

Diversification Opportunities for SM Energy and Epsilon Energy

0.36

Correlation Coefficient

SM Energy  Epsilon Energy

Weak diversification

The 3 months correlation between SM Energy and Epsilon is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Epsilon Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Epsilon Energy and SM 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 SM Energy Co are associated (or correlated) with Epsilon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Epsilon Energy has no effect on the direction of SM Energy i.e., SM Energy and Epsilon Energy go up and down completely randomly.

Pair Corralation between SM Energy and Epsilon Energy

Allowing for the 90-day total investment horizon SM Energy Co is expected to under-perform the Epsilon Energy. In addition to that, SM Energy is 1.05 times more volatile than Epsilon Energy. It trades about -0.32 of its total potential returns per unit of risk. Epsilon Energy is currently generating about 0.11 per unit of volatility. If you would invest  564.00  in Epsilon Energy on September 19, 2024 and sell it today you would earn a total of  23.00  from holding Epsilon Energy or generate 4.08% return on investment over 90 days.

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

SM Energy Co  vs.  Epsilon Energy

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.

Epsilon Energy

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Epsilon Energy are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Epsilon Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Energy and Epsilon Energy

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

The idea behind SM Energy Co and Epsilon Energy 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.