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
0.41 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between United and 0KZA is 0.41. 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
Assuming the 90 days trading horizon United States Steel is expected to generate 2.02 times more return on investment than SM Energy. However, United States is 2.02 times more volatile than SM Energy Co. It trades about 0.09 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.16 per unit of risk. If you would invest 3,842 in United States Steel on September 4, 2024 and sell it today you would earn a total of 235.00 from holding United States Steel or generate 6.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
United States Steel vs. SM Energy Co
Performance |
| Timeline |
| United States Steel |
| SM Energy |
United States and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
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.| United States vs. Samsung Electronics Co | United States vs. Samsung Electronics Co | United States vs. Hyundai Motor | United States vs. Toyota Motor Corp |
| SM Energy vs. Samsung Electronics Co | SM Energy vs. Samsung Electronics Co | SM Energy vs. Hyundai Motor | SM Energy vs. Toyota Motor Corp |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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