Correlation Between SM Energy and Trio Petroleum

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

Diversification Opportunities for SM Energy and Trio Petroleum

-0.61

Correlation Coefficient

SM Energy  Trio Petroleum

Excellent diversification

The 3 months correlation between SM Energy and Trio is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Trio Petroleum Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trio Petroleum Corp 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 Trio Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trio Petroleum Corp has no effect on the direction of SM Energy i.e., SM Energy and Trio Petroleum go up and down completely randomly.

Pair Corralation between SM Energy and Trio Petroleum

Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 0.36 times more return on investment than Trio Petroleum. However, SM Energy Co is 2.81 times less risky than Trio Petroleum. It trades about 0.06 of its potential returns per unit of risk. Trio Petroleum Corp is currently generating about -0.27 per unit of risk. If you would invest  4,125  in SM Energy Co on September 5, 2024 and sell it today you would earn a total of  326.00  from holding SM Energy Co or generate 7.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

SM Energy Co  vs.  Trio Petroleum Corp

SM Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, SM Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Trio Petroleum Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Trio Petroleum Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with SM Energy and Trio Petroleum

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

The idea behind SM Energy Co and Trio Petroleum Corp 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..