Correlation Between AK Steel and SM Energy

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

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

Diversification Opportunities for AK Steel and SM Energy

0.0

Correlation Coefficient

AK Steel  SM Energy

Pay attention - limited upside

The 3 months correlation between AKS and SM Energy is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding AK Steel Holding and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and AK Steel 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 AK Steel Holding 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 AK Steel i.e., AK Steel and SM Energy go up and down completely randomly.

Pair Corralation between AK Steel and SM Energy

If you would invest  5,040  in SM Energy Co on January 31, 2024 and sell it today you would earn a total of  44.00  from holding SM Energy Co or generate 0.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

AK Steel Holding  vs.  SM Energy Co

AK Steel Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AK Steel Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, AK Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

SM Energy

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, SM Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AK Steel and SM Energy

The main advantage of trading using opposite AK Steel and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AK Steel 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 AK Steel Holding 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.