Correlation Between Pioneer Natural and SM Energy

Can any of the company-specific risk be diversified away by investing in both Pioneer Natural 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 Pioneer Natural and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Pioneer Natural Resources and SM Energy Co, you can compare the effects of market volatilities on Pioneer Natural 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 Pioneer Natural with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pioneer Natural and SM Energy.

Diversification Opportunities for Pioneer Natural and SM Energy

0.96

Correlation Coefficient

Pioneer Natural  SM Energy

Almost no diversification

The 3 months correlation between Pioneer and SM Energy is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Pioneer Natural Resources and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Pioneer Natural 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 Pioneer Natural Resources 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 Pioneer Natural i.e., Pioneer Natural and SM Energy go up and down completely randomly.

Pair Corralation between Pioneer Natural and SM Energy

Considering the 90-day investment horizon Pioneer Natural Resources is expected to generate 0.61 times more return on investment than SM Energy. However, Pioneer Natural Resources is 1.65 times less risky than SM Energy. It trades about 0.41 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.11 per unit of risk. If you would invest  25,685  in Pioneer Natural Resources on January 26, 2024 and sell it today you would earn a total of  1,867  from holding Pioneer Natural Resources or generate 7.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Pioneer Natural Resources  vs.  SM Energy Co

Pioneer Natural Resources

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Pioneer Natural Resources are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Pioneer Natural exhibited solid returns over the last few months and may actually be approaching a breakup point.

SM Energy

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady primary indicators, SM Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pioneer Natural and SM Energy

The main advantage of trading using opposite Pioneer Natural and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Pioneer Natural 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 Pioneer Natural Resources 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.

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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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.