Correlation Between SM Energy and DG Innovate
Can any of the company-specific risk be diversified away by investing in both SM Energy and DG Innovate 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 DG Innovate 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 DG Innovate PLC, you can compare the effects of market volatilities on SM Energy and DG Innovate 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 DG Innovate. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and DG Innovate.
Diversification Opportunities for SM Energy and DG Innovate
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between 0KZA and DGI is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and DG Innovate PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DG Innovate 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 DG Innovate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DG Innovate PLC has no effect on the direction of SM Energy i.e., SM Energy and DG Innovate go up and down completely randomly.
Pair Corralation between SM Energy and DG Innovate
Assuming the 90 days trading horizon SM Energy is expected to generate 3.43 times less return on investment than DG Innovate. But when comparing it to its historical volatility, SM Energy Co is 3.41 times less risky than DG Innovate. It trades about 0.22 of its potential returns per unit of risk. DG Innovate PLC is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 6.30 in DG Innovate PLC on August 27, 2024 and sell it today you would earn a total of 1.95 from holding DG Innovate PLC or generate 30.95% 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. DG Innovate PLC
Performance |
| Timeline |
| SM Energy |
| DG Innovate PLC |
SM Energy and DG Innovate Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and DG Innovate
The main advantage of trading using opposite SM Energy and DG Innovate positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, DG Innovate 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 DG Innovate will offset losses from the drop in DG Innovate's long position.| SM Energy vs. Endeavour Mining Corp | SM Energy vs. Thor Mining PLC | SM Energy vs. iShares Physical Silver | SM Energy vs. Metals Exploration Plc |
| DG Innovate vs. Supermarket Income REIT | DG Innovate vs. Associated British Foods | DG Innovate vs. Teradata Corp | DG Innovate vs. Vitec Software Group |
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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.
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