Correlation Between SM Energy and Amplify Energy

Can any of the company-specific risk be diversified away by investing in both SM Energy and Amplify 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 SM Energy and Amplify Energy 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 Amplify Energy Corp, you can compare the effects of market volatilities on SM Energy and Amplify 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 SM Energy with a short position of Amplify Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of SM Energy and Amplify Energy.

Diversification Opportunities for SM Energy and Amplify Energy

0.72

Correlation Coefficient

SM Energy  Amplify Energy

Poor diversification

The 3 months correlation between SM Energy and Amplify is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Amplify Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amplify Energy Corp 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 Amplify Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amplify Energy Corp has no effect on the direction of SM Energy i.e., SM Energy and Amplify Energy go up and down completely randomly.

Pair Corralation between SM Energy and Amplify Energy

Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 0.76 times more return on investment than Amplify Energy. However, SM Energy Co is 1.32 times less risky than Amplify Energy. It trades about 0.09 of its potential returns per unit of risk. Amplify Energy Corp is currently generating about 0.0 per unit of risk. If you would invest  2,888  in SM Energy Co on January 24, 2024 and sell it today you would earn a total of  1,997  from holding SM Energy Co or generate 69.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.66%
Values	Daily Returns

SM Energy Co  vs.  Amplify Energy Corp

SM Energy

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 22 (%) 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.

Amplify Energy Corp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Amplify Energy Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Amplify Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Energy and Amplify Energy

The main advantage of trading using opposite SM Energy and Amplify Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SM Energy position performs unexpectedly, Amplify 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 Amplify Energy will offset losses from the drop in Amplify Energy's long position.

The idea behind SM Energy Co and Amplify Energy Corp 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.