Correlation Between SM Energy and Ring Energy

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

Diversification Opportunities for SM Energy and Ring Energy

0.92

Correlation Coefficient

SM Energy  Ring Energy

Almost no diversification

The 3 months correlation between SM Energy and Ring is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Ring Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ring 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 Ring Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ring Energy has no effect on the direction of SM Energy i.e., SM Energy and Ring Energy go up and down completely randomly.

Pair Corralation between SM Energy and Ring Energy

Allowing for the 90-day total investment horizon SM Energy Co is expected to under-perform the Ring Energy. But the stock apears to be less risky and, when comparing its historical volatility, SM Energy Co is 1.05 times less risky than Ring Energy. The stock trades about -0.13 of its potential returns per unit of risk. The Ring Energy is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  133.00  in Ring Energy on December 28, 2024 and sell it today you would lose (13.00) from holding Ring Energy or give up 9.77% 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.  Ring Energy

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.

Ring Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ring Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's technical and fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with SM Energy and Ring Energy

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

The idea behind SM Energy Co and Ring 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.