Correlation Between SM Energy and Matador Resources

Can any of the company-specific risk be diversified away by investing in both SM Energy and Matador Resources 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 Matador Resources 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 Matador Resources, you can compare the effects of market volatilities on SM Energy and Matador Resources 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 Matador Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Matador Resources.

Diversification Opportunities for SM Energy and Matador Resources

0.94

Correlation Coefficient

SM Energy  Matador Resources

Almost no diversification

The 3 months correlation between SM Energy and Matador is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Matador Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Matador Resources 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 Matador Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Matador Resources has no effect on the direction of SM Energy i.e., SM Energy and Matador Resources go up and down completely randomly.

Pair Corralation between SM Energy and Matador Resources

Allowing for the 90-day total investment horizon SM Energy Co is expected to under-perform the Matador Resources. In addition to that, SM Energy is 1.16 times more volatile than Matador Resources. It trades about -0.14 of its total potential returns per unit of risk. Matador Resources is currently generating about -0.05 per unit of volatility. If you would invest  5,504  in Matador Resources on December 29, 2024 and sell it today you would lose (453.00) from holding Matador Resources or give up 8.23% of portfolio value over 90 days.

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

SM Energy Co  vs.  Matador Resources

SM Energy

Risk-Adjusted Performance

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 unsteady performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Matador Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Matador Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with SM Energy and Matador Resources

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

The idea behind SM Energy Co and Matador Resources 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.