Correlation Between SM Energy and SoFi Select

Can any of the company-specific risk be diversified away by investing in both SM Energy and SoFi Select 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 SoFi Select 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 SoFi Select 500, you can compare the effects of market volatilities on SM Energy and SoFi Select 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 SoFi Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and SoFi Select.

Diversification Opportunities for SM Energy and SoFi Select

-0.05

Correlation Coefficient

SM Energy  SoFi Select

Good diversification

The 3 months correlation between SM Energy and SoFi is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and SoFi Select 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoFi Select 500 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 SoFi Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoFi Select 500 has no effect on the direction of SM Energy i.e., SM Energy and SoFi Select go up and down completely randomly.

Pair Corralation between SM Energy and SoFi Select

Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 1.76 times more return on investment than SoFi Select. However, SM Energy is 1.76 times more volatile than SoFi Select 500. It trades about 0.18 of its potential returns per unit of risk. SoFi Select 500 is currently generating about 0.09 per unit of risk. If you would invest  3,768  in SM Energy Co on October 26, 2024 and sell it today you would earn a total of  241.00  from holding SM Energy Co or generate 6.4% return on investment over 90 days.

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

SM Energy Co  vs.  SoFi Select 500

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.

SoFi Select 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SoFi Select 500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, SoFi Select may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SM Energy and SoFi Select

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

The idea behind SM Energy Co and SoFi Select 500 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.