Correlation Between SoFi Next and SM Energy
Can any of the company-specific risk be diversified away by investing in both SoFi Next 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 SoFi Next and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SoFi Next 500 and SM Energy Co, you can compare the effects of market volatilities on SoFi Next 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 SoFi Next with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SoFi Next and SM Energy.
Diversification Opportunities for SoFi Next and SM Energy
Very weak diversification
The 3 months correlation between SoFi and SM Energy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding SoFi Next 500 and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and SoFi Next 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 SoFi Next 500 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 SoFi Next i.e., SoFi Next and SM Energy go up and down completely randomly.
Pair Corralation between SoFi Next and SM Energy
Given the investment horizon of 90 days SoFi Next 500 is expected to generate 0.62 times more return on investment than SM Energy. However, SoFi Next 500 is 1.63 times less risky than SM Energy. It trades about 0.28 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.12 per unit of risk. If you would invest 1,428 in SoFi Next 500 on August 26, 2024 and sell it today you would earn a total of 130.00 from holding SoFi Next 500 or generate 9.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
SoFi Next 500 vs. SM Energy Co
Performance |
| Timeline |
| SoFi Next 500 |
| SM Energy |
SoFi Next and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SoFi Next and SM Energy
The main advantage of trading using opposite SoFi Next and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SoFi Next 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.| SoFi Next vs. Vanguard Mid Cap Index | SoFi Next vs. Vanguard Extended Market | SoFi Next vs. iShares Core SP | SoFi Next vs. SPDR SP MIDCAP |
| 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.
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