Correlation Between SM Energy and SoFi Next
Can any of the company-specific risk be diversified away by investing in both SM Energy and SoFi Next 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 SoFi Next 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 SoFi Next 500, you can compare the effects of market volatilities on SM Energy and SoFi Next 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 SoFi Next. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and SoFi Next.
Diversification Opportunities for SM Energy and SoFi Next
Very weak diversification
The 3 months correlation between SM Energy and SoFi is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and SoFi Next 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoFi Next 500 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 SoFi Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoFi Next 500 has no effect on the direction of SM Energy i.e., SM Energy and SoFi Next go up and down completely randomly.
Pair Corralation between SM Energy and SoFi Next
Allowing for the 90-day total investment horizon SM Energy is expected to generate 1.06 times less return on investment than SoFi Next. In addition to that, SM Energy is 1.63 times more volatile than SoFi Next 500. It trades about 0.15 of its total potential returns per unit of risk. SoFi Next 500 is currently generating about 0.26 per unit of volatility. If you would invest 1,446 in SoFi Next 500 on August 30, 2024 and sell it today you would earn a total of 122.00 from holding SoFi Next 500 or generate 8.44% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
SM Energy Co vs. SoFi Next 500
Performance |
| Timeline |
| SM Energy |
| SoFi Next 500 |
SM Energy and SoFi Next Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and SoFi Next
The main advantage of trading using opposite SM Energy and SoFi Next positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, SoFi Next 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 SoFi Next will offset losses from the drop in SoFi Next's 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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