Correlation Between SM Energy and Western Midstream
Can any of the company-specific risk be diversified away by investing in both SM Energy and Western Midstream 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 Western Midstream 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 Western Midstream Partners, you can compare the effects of market volatilities on SM Energy and Western Midstream 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 Western Midstream. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Western Midstream.
Diversification Opportunities for SM Energy and Western Midstream
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SM Energy and Western is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream 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 Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of SM Energy i.e., SM Energy and Western Midstream go up and down completely randomly.
Pair Corralation between SM Energy and Western Midstream
Allowing for the 90-day total investment horizon SM Energy is expected to generate 3.66 times less return on investment than Western Midstream. In addition to that, SM Energy is 1.45 times more volatile than Western Midstream Partners. It trades about 0.03 of its total potential returns per unit of risk. Western Midstream Partners is currently generating about 0.16 per unit of volatility. If you would invest 3,449 in Western Midstream Partners on January 25, 2024 and sell it today you would earn a total of 111.00 from holding Western Midstream Partners or generate 3.22% 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. Western Midstream Partners
Performance |
| Timeline |
| SM Energy |
| Western Midstream |
SM Energy and Western Midstream Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SM Energy and Western Midstream
The main advantage of trading using opposite SM Energy and Western Midstream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Western Midstream 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 Western Midstream will offset losses from the drop in Western Midstream'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 CEOs Directory module to screen CEOs from public companies around the world.
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