Correlation Between SM Energy and EON Resources

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

Diversification Opportunities for SM Energy and EON Resources

0.14

Correlation Coefficient

SM Energy  EON Resources

Average diversification

The 3 months correlation between SM Energy and EON is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and EON Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EON Resources 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 EON Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EON Resources has no effect on the direction of SM Energy i.e., SM Energy and EON Resources go up and down completely randomly.

Pair Corralation between SM Energy and EON Resources

Allowing for the 90-day total investment horizon SM Energy is expected to generate 4.23 times less return on investment than EON Resources. But when comparing it to its historical volatility, SM Energy Co is 6.75 times less risky than EON Resources. It trades about 0.02 of its potential returns per unit of risk. EON Resources is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  111.00  in EON Resources on September 16, 2024 and sell it today you would lose (40.00) from holding EON Resources or give up 36.04% of portfolio value over 90 days.

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

SM Energy Co  vs.  EON Resources

SM Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, SM Energy is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

EON Resources

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EON Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, EON Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Energy and EON Resources

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

The idea behind SM Energy Co and EON Resources 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.