Correlation Between Tesla and SM Energy
Can any of the company-specific risk be diversified away by investing in both Tesla 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 Tesla and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Tesla Inc and SM Energy Co, you can compare the effects of market volatilities on Tesla 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 Tesla with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and SM Energy.
Diversification Opportunities for Tesla and SM Energy
Modest diversification
The 3 months correlation between Tesla and SM Energy is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Tesla 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 Tesla Inc 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 Tesla i.e., Tesla and SM Energy go up and down completely randomly.
Pair Corralation between Tesla and SM Energy
Given the investment horizon of 90 days Tesla Inc is expected to generate 2.17 times more return on investment than SM Energy. However, Tesla is 2.17 times more volatile than SM Energy Co. It trades about 0.26 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 26,251 in Tesla Inc on August 27, 2024 and sell it today you would earn a total of 7,608 from holding Tesla Inc or generate 28.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Tesla Inc vs. SM Energy Co
Performance |
| Timeline |
| Tesla Inc |
| SM Energy |
Tesla and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Tesla and SM Energy
The main advantage of trading using opposite Tesla and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla 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.The idea behind Tesla Inc and SM Energy Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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