Correlation Between Northern Oil and SM Energy
Can any of the company-specific risk be diversified away by investing in both Northern Oil 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 Northern Oil and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Northern Oil Gas and SM Energy Co, you can compare the effects of market volatilities on Northern Oil 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 Northern Oil with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Northern Oil and SM Energy.
Diversification Opportunities for Northern Oil and SM Energy
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Northern and SM Energy is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Northern Oil Gas and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Northern Oil 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 Northern Oil Gas 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 Northern Oil i.e., Northern Oil and SM Energy go up and down completely randomly.
Pair Corralation between Northern Oil and SM Energy
Considering the 90-day investment horizon Northern Oil Gas is expected to generate 1.17 times more return on investment than SM Energy. However, Northern Oil is 1.17 times more volatile than SM Energy Co. It trades about 0.31 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 3,655 in Northern Oil Gas on August 28, 2024 and sell it today you would earn a total of 676.00 from holding Northern Oil Gas or generate 18.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Northern Oil Gas vs. SM Energy Co
Performance |
| Timeline |
| Northern Oil Gas |
| SM Energy |
Northern Oil and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Northern Oil and SM Energy
The main advantage of trading using opposite Northern Oil and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Oil 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.| Northern Oil vs. Devon Energy | Northern Oil vs. ConocoPhillips | Northern Oil vs. Occidental Petroleum | Northern Oil vs. Permian 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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