Correlation Between SM Energy and Steel Dynamics
Can any of the company-specific risk be diversified away by investing in both SM Energy and Steel Dynamics 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 Steel Dynamics 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 Steel Dynamics, you can compare the effects of market volatilities on SM Energy and Steel Dynamics 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 Steel Dynamics. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Steel Dynamics.
Diversification Opportunities for SM Energy and Steel Dynamics
0.95 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SM Energy and Steel is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Steel Dynamics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steel Dynamics 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 Steel Dynamics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steel Dynamics has no effect on the direction of SM Energy i.e., SM Energy and Steel Dynamics go up and down completely randomly.
Pair Corralation between SM Energy and Steel Dynamics
Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 0.97 times more return on investment than Steel Dynamics. However, SM Energy Co is 1.03 times less risky than Steel Dynamics. It trades about 0.3 of its potential returns per unit of risk. Steel Dynamics is currently generating about 0.12 per unit of risk. If you would invest 3,705 in SM Energy Co on January 26, 2024 and sell it today you would earn a total of 1,296 from holding SM Energy Co or generate 34.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SM Energy Co vs. Steel Dynamics
Performance |
| Timeline |
| SM Energy |
| Steel Dynamics |
SM Energy and Steel Dynamics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and Steel Dynamics
The main advantage of trading using opposite SM Energy and Steel Dynamics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Steel Dynamics 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 Steel Dynamics will offset losses from the drop in Steel Dynamics' long position.| SM Energy vs. Vital Energy | SM Energy vs. Permian Resources | SM Energy vs. Matador Resources | SM Energy vs. Obsidian Energy |
| Steel Dynamics vs. Cleveland Cliffs | Steel Dynamics vs. Reliance Steel Aluminum | Steel Dynamics vs. Ternium SA ADR |
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 Commodity Directory module to find actively traded commodities issued by global exchanges.
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