Correlation Between SM Energy and Reliance Steel
Can any of the company-specific risk be diversified away by investing in both SM Energy and Reliance Steel 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 Reliance Steel 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 Reliance Steel Aluminum, you can compare the effects of market volatilities on SM Energy and Reliance Steel 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 Reliance Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Reliance Steel.
Diversification Opportunities for SM Energy and Reliance Steel
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between SM Energy and Reliance is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Reliance Steel Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reliance Steel Aluminum 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 Reliance Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reliance Steel Aluminum has no effect on the direction of SM Energy i.e., SM Energy and Reliance Steel go up and down completely randomly.
Pair Corralation between SM Energy and Reliance Steel
Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 1.72 times more return on investment than Reliance Steel. However, SM Energy is 1.72 times more volatile than Reliance Steel Aluminum. It trades about 0.04 of its potential returns per unit of risk. Reliance Steel Aluminum is currently generating about 0.07 per unit of risk. If you would invest 3,357 in SM Energy Co on January 20, 2024 and sell it today you would earn a total of 1,452 from holding SM Energy Co or generate 43.25% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
SM Energy Co vs. Reliance Steel Aluminum
Performance |
Timeline |
SM Energy |
Reliance Steel Aluminum |
SM Energy and Reliance Steel Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with SM Energy and Reliance Steel
The main advantage of trading using opposite SM Energy and Reliance Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Reliance Steel 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 Reliance Steel will offset losses from the drop in Reliance Steel's long position.SM Energy vs. Vital Energy | SM Energy vs. Permian Resources | SM Energy vs. Matador Resources | SM Energy vs. Obsidian Energy |
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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 Stocks Directory module to find actively traded stocks across global markets.
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