Correlation Between SM Energy and Southern Copper

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

Diversification Opportunities for SM Energy and Southern Copper

0.81
  Correlation Coefficient

Very poor diversification

The 3 months correlation between SM Energy and Southern is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Southern Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern Copper 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 Southern Copper. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern Copper has no effect on the direction of SM Energy i.e., SM Energy and Southern Copper go up and down completely randomly.

Pair Corralation between SM Energy and Southern Copper

Allowing for the 90-day total investment horizon SM Energy is expected to generate 1.93 times less return on investment than Southern Copper. But when comparing it to its historical volatility, SM Energy Co is 2.23 times less risky than Southern Copper. It trades about 0.48 of its potential returns per unit of risk. Southern Copper is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  8,080  in Southern Copper on December 29, 2023 and sell it today you would earn a total of  2,352  from holding Southern Copper or generate 29.11% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

SM Energy Co  vs.  Southern Copper

 Performance 
       Timeline  
SM Energy 

Risk-Adjusted Performance

18 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 18 (%) 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.
Southern Copper 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Southern Copper are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Southern Copper displayed solid returns over the last few months and may actually be approaching a breakup point.

SM Energy and Southern Copper Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SM Energy and Southern Copper

The main advantage of trading using opposite SM Energy and Southern Copper positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Southern Copper 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 Southern Copper will offset losses from the drop in Southern Copper's long position.
The idea behind SM Energy Co and Southern Copper 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 CEOs Directory module to screen CEOs from public companies around the world.

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