Correlation Between United States and SM Energy

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

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

Diversification Opportunities for United States and SM Energy

-0.77

Correlation Coefficient

United States  SM Energy

Pay attention - limited upside

The 3 months correlation between United and SM Energy is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding United States Steel and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and United States 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 United States Steel 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 United States i.e., United States and SM Energy go up and down completely randomly.

Pair Corralation between United States and SM Energy

Taking into account the 90-day investment horizon United States is expected to generate 1.38 times less return on investment than SM Energy. In addition to that, United States is 1.31 times more volatile than SM Energy Co. It trades about 0.05 of its total potential returns per unit of risk. SM Energy Co is currently generating about 0.08 per unit of volatility. If you would invest  2,897  in SM Energy Co on January 31, 2024 and sell it today you would earn a total of  2,187  from holding SM Energy Co or generate 75.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

United States Steel  vs.  SM Energy Co

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel 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 basic indicators remain fairly strong which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long term up-swing for the company 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 United States and SM Energy

The main advantage of trading using opposite United States and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United States 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 United States Steel 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.

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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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.