Correlation Between SM Energy and Tlou Energy

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

Diversification Opportunities for SM Energy and Tlou Energy

-0.29

Correlation Coefficient

SM Energy  Tlou Energy

Very good diversification

The 3 months correlation between 0KZA and Tlou is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Tlou Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tlou Energy 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 Tlou Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tlou Energy has no effect on the direction of SM Energy i.e., SM Energy and Tlou Energy go up and down completely randomly.

Pair Corralation between SM Energy and Tlou Energy

Assuming the 90 days trading horizon SM Energy Co is expected to under-perform the Tlou Energy. In addition to that, SM Energy is 1.1 times more volatile than Tlou Energy. It trades about -0.12 of its total potential returns per unit of risk. Tlou Energy is currently generating about 0.01 per unit of volatility. If you would invest  73.00  in Tlou Energy on September 13, 2024 and sell it today you would earn a total of  0.00  from holding Tlou Energy or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

SM Energy Co  vs.  Tlou Energy

SM Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, SM Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Tlou Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tlou Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with SM Energy and Tlou Energy

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

The idea behind SM Energy Co and Tlou Energy 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.