Correlation Between SM Energy and Marathon Oil
Can any of the company-specific risk be diversified away by investing in both SM Energy and Marathon Oil 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 SM Energy and Marathon Oil into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SM Energy Co and Marathon Oil, you can compare the effects of market volatilities on SM Energy and Marathon Oil 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 SM Energy with a short position of Marathon Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Marathon Oil.
Diversification Opportunities for SM Energy and Marathon Oil
0.76 | Correlation Coefficient |
Poor diversification
The 3 months correlation between SM Energy and Marathon is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Marathon Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Marathon Oil and SM 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 SM Energy Co are associated (or correlated) with Marathon Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Marathon Oil has no effect on the direction of SM Energy i.e., SM Energy and Marathon Oil go up and down completely randomly.
Pair Corralation between SM Energy and Marathon Oil
Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 1.33 times more return on investment than Marathon Oil. However, SM Energy is 1.33 times more volatile than Marathon Oil. It trades about 0.17 of its potential returns per unit of risk. Marathon Oil is currently generating about 0.2 per unit of risk. If you would invest 4,178 in SM Energy Co on August 24, 2024 and sell it today you would earn a total of 368.00 from holding SM Energy Co or generate 8.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SM Energy Co vs. Marathon Oil
Performance |
| Timeline |
| SM Energy |
| Marathon Oil |
SM Energy and Marathon Oil Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and Marathon Oil
The main advantage of trading using opposite SM Energy and Marathon Oil positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Marathon Oil 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 Marathon Oil will offset losses from the drop in Marathon Oil's long position.| SM Energy vs. Vital Energy | SM Energy vs. Permian Resources | SM Energy vs. Matador Resources | SM Energy vs. Obsidian Energy |
| Marathon Oil vs. EOG Resources | Marathon Oil vs. Diamondback Energy | Marathon Oil vs. Hess Corporation | Marathon Oil vs. Devon 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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