Correlation Between WT Offshore and SM Energy

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

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

Diversification Opportunities for WT Offshore and SM Energy

0.61

Correlation Coefficient

WT Offshore  SM Energy

Poor diversification

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

Pair Corralation between WT Offshore and SM Energy

Considering the 90-day investment horizon WT Offshore is expected to generate 1.17 times more return on investment than SM Energy. However, WT Offshore is 1.17 times more volatile than SM Energy Co. It trades about 0.03 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.11 per unit of risk. If you would invest  160.00  in WT Offshore on December 27, 2024 and sell it today you would earn a total of  4.00  from holding WT Offshore or generate 2.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

WT Offshore  vs.  SM Energy Co

WT Offshore

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WT Offshore are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, WT Offshore is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

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.

Pair Trading with WT Offshore and SM Energy

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

The idea behind WT Offshore and SM Energy Co 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.