Correlation Between Epsilon Energy and SM Energy
Can any of the company-specific risk be diversified away by investing in both Epsilon Energy 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 Epsilon Energy and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Epsilon Energy and SM Energy Co, you can compare the effects of market volatilities on Epsilon Energy 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 Epsilon Energy with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Epsilon Energy and SM Energy.
Diversification Opportunities for Epsilon Energy and SM Energy
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Epsilon and SM Energy is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Epsilon Energy and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Epsilon 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 Epsilon Energy 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 Epsilon Energy i.e., Epsilon Energy and SM Energy go up and down completely randomly.
Pair Corralation between Epsilon Energy and SM Energy
Given the investment horizon of 90 days Epsilon Energy is expected to generate 4.34 times less return on investment than SM Energy. But when comparing it to its historical volatility, Epsilon Energy is 1.34 times less risky than SM Energy. It trades about 0.01 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 3,695 in SM Energy Co on August 27, 2024 and sell it today you would earn a total of 908.00 from holding SM Energy Co or generate 24.57% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Epsilon Energy vs. SM Energy Co
Performance |
| Timeline |
| Epsilon Energy |
| SM Energy |
Epsilon Energy and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Epsilon Energy and SM Energy
The main advantage of trading using opposite Epsilon Energy and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Epsilon Energy 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.| Epsilon Energy vs. Vaalco Energy | Epsilon Energy vs. PHX Minerals | Epsilon Energy vs. Northern Oil Gas | Epsilon Energy vs. Granite Ridge Resources |
| SM Energy vs. Vital Energy | SM Energy vs. Permian Resources | SM Energy vs. Matador Resources | SM Energy vs. Obsidian Energy |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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