Correlation Between SM Energy and BT Group
Can any of the company-specific risk be diversified away by investing in both SM Energy and BT Group 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 BT Group 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 BT Group Plc, you can compare the effects of market volatilities on SM Energy and BT Group 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 BT Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and BT Group.
Diversification Opportunities for SM Energy and BT Group
Good diversification
The 3 months correlation between 0KZA and BT-A is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and BT Group Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BT Group Plc 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 BT Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BT Group Plc has no effect on the direction of SM Energy i.e., SM Energy and BT Group go up and down completely randomly.
Pair Corralation between SM Energy and BT Group
Assuming the 90 days trading horizon SM Energy is expected to generate 1.51 times less return on investment than BT Group. But when comparing it to its historical volatility, SM Energy Co is 1.05 times less risky than BT Group. It trades about 0.16 of its potential returns per unit of risk. BT Group Plc is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 14,280 in BT Group Plc on August 29, 2024 and sell it today you would earn a total of 1,570 from holding BT Group Plc or generate 10.99% 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. BT Group Plc
Performance |
| Timeline |
| SM Energy |
| BT Group Plc |
SM Energy and BT Group Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and BT Group
The main advantage of trading using opposite SM Energy and BT Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, BT Group 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 BT Group will offset losses from the drop in BT Group's long position.| SM Energy vs. Naturhouse Health SA | SM Energy vs. Induction Healthcare Group | SM Energy vs. Omega Healthcare Investors | SM Energy vs. Gaming Realms plc |
| BT Group vs. FC Investment Trust | BT Group vs. Coor Service Management | BT Group vs. STMicroelectronics NV | BT Group vs. Hansa 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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