Correlation Between Permian Resources and SM Energy
Can any of the company-specific risk be diversified away by investing in both Permian Resources 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 Permian Resources and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Permian Resources and SM Energy Co, you can compare the effects of market volatilities on Permian Resources 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 Permian Resources with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Permian Resources and SM Energy.
Diversification Opportunities for Permian Resources and SM Energy
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Permian and SM Energy is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Permian Resources and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Permian Resources 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 Permian Resources 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 Permian Resources i.e., Permian Resources and SM Energy go up and down completely randomly.
Pair Corralation between Permian Resources and SM Energy
Allowing for the 90-day total investment horizon Permian Resources is expected to generate 0.75 times more return on investment than SM Energy. However, Permian Resources is 1.33 times less risky than SM Energy. It trades about 0.51 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 1,348 in Permian Resources on August 27, 2024 and sell it today you would earn a total of 273.00 from holding Permian Resources or generate 20.25% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Permian Resources vs. SM Energy Co
Performance |
| Timeline |
| Permian Resources |
| SM Energy |
Permian Resources and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Permian Resources and SM Energy
The main advantage of trading using opposite Permian Resources and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Permian Resources 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.| Permian Resources vs. Devon Energy | Permian Resources vs. ConocoPhillips | Permian Resources vs. Occidental Petroleum | Permian Resources vs. EOG 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.
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