Correlation Between Western Midstream and SM Energy
Can any of the company-specific risk be diversified away by investing in both Western Midstream 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 Western Midstream and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Midstream Partners and SM Energy Co, you can compare the effects of market volatilities on Western Midstream 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 Western Midstream with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and SM Energy.
Diversification Opportunities for Western Midstream and SM Energy
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Western and SM Energy is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Western Midstream 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 Western Midstream Partners 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 Western Midstream i.e., Western Midstream and SM Energy go up and down completely randomly.
Pair Corralation between Western Midstream and SM Energy
Considering the 90-day investment horizon Western Midstream Partners is expected to generate 0.7 times more return on investment than SM Energy. However, Western Midstream Partners is 1.42 times less risky than SM Energy. It trades about 0.07 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.01 per unit of risk. If you would invest 3,490 in Western Midstream Partners on January 20, 2024 and sell it today you would earn a total of 48.00 from holding Western Midstream Partners or generate 1.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Midstream Partners vs. SM Energy Co
Performance |
| Timeline |
| Western Midstream |
| SM Energy |
Western Midstream and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Midstream and SM Energy
The main advantage of trading using opposite Western Midstream and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Midstream 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.| Western Midstream vs. DT Midstream | Western Midstream vs. MPLX LP | Western Midstream vs. NuStar Energy LP | Western Midstream vs. Plains All American |
| 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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