Correlation Between SM Energy and Overstock
Can any of the company-specific risk be diversified away by investing in both SM Energy and Overstock 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 Overstock 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 Overstock, you can compare the effects of market volatilities on SM Energy and Overstock 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 Overstock. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Overstock.
Diversification Opportunities for SM Energy and Overstock
Very good diversification
The 3 months correlation between 0KZA and Overstock is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Overstock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Overstock 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 Overstock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Overstock has no effect on the direction of SM Energy i.e., SM Energy and Overstock go up and down completely randomly.
Pair Corralation between SM Energy and Overstock
Assuming the 90 days trading horizon SM Energy Co is expected to generate 0.6 times more return on investment than Overstock. However, SM Energy Co is 1.66 times less risky than Overstock. It trades about 0.17 of its potential returns per unit of risk. Overstock is currently generating about -0.14 per unit of risk. If you would invest 4,169 in SM Energy Co on August 30, 2024 and sell it today you would earn a total of 321.00 from holding SM Energy Co or generate 7.7% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SM Energy Co vs. Overstock
Performance |
| Timeline |
| SM Energy |
| Overstock |
SM Energy and Overstock Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and Overstock
The main advantage of trading using opposite SM Energy and Overstock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Overstock 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 Overstock will offset losses from the drop in Overstock's long position.| SM Energy vs. Advanced Medical Solutions | SM Energy vs. Arrow Electronics | SM Energy vs. UNIQA Insurance Group | SM Energy vs. Bloomsbury Publishing Plc |
| Overstock vs. Prosiebensat 1 Media | Overstock vs. Blackstone Loan Financing | Overstock vs. Zinc Media Group | Overstock vs. CleanTech Lithium plc |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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