Correlation Between SM Energy and POSCO Holdings
Can any of the company-specific risk be diversified away by investing in both SM Energy and POSCO Holdings 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 POSCO Holdings 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 POSCO Holdings, you can compare the effects of market volatilities on SM Energy and POSCO Holdings 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 POSCO Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and POSCO Holdings.
Diversification Opportunities for SM Energy and POSCO Holdings
-0.33 | Correlation Coefficient |
Very good diversification
The 3 months correlation between SM Energy and POSCO is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and POSCO Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POSCO Holdings 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 POSCO Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POSCO Holdings has no effect on the direction of SM Energy i.e., SM Energy and POSCO Holdings go up and down completely randomly.
Pair Corralation between SM Energy and POSCO Holdings
Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 0.8 times more return on investment than POSCO Holdings. However, SM Energy Co is 1.25 times less risky than POSCO Holdings. It trades about 0.16 of its potential returns per unit of risk. POSCO Holdings is currently generating about -0.22 per unit of risk. If you would invest 4,196 in SM Energy Co on August 27, 2024 and sell it today you would earn a total of 318.00 from holding SM Energy Co or generate 7.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SM Energy Co vs. POSCO Holdings
Performance |
| Timeline |
| SM Energy |
| POSCO Holdings |
SM Energy and POSCO Holdings Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and POSCO Holdings
The main advantage of trading using opposite SM Energy and POSCO Holdings positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, POSCO Holdings 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 POSCO Holdings will offset losses from the drop in POSCO Holdings' long position.| 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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