Correlation Between SM Energy and Ovintiv

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

Diversification Opportunities for SM Energy and Ovintiv

0.84

Correlation Coefficient

SM Energy  Ovintiv

Very poor diversification

The 3 months correlation between SM Energy and Ovintiv is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Ovintiv in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ovintiv 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 Ovintiv. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ovintiv has no effect on the direction of SM Energy i.e., SM Energy and Ovintiv go up and down completely randomly.

Pair Corralation between SM Energy and Ovintiv

Allowing for the 90-day total investment horizon SM Energy is expected to generate 1.68 times less return on investment than Ovintiv. In addition to that, SM Energy is 1.09 times more volatile than Ovintiv. It trades about 0.01 of its total potential returns per unit of risk. Ovintiv is currently generating about 0.03 per unit of volatility. If you would invest  3,964  in Ovintiv on September 17, 2024 and sell it today you would earn a total of  87.00  from holding Ovintiv or generate 2.19% return on investment over 90 days.

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

SM Energy Co  vs.  Ovintiv

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.

Ovintiv

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ovintiv are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Ovintiv is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with SM Energy and Ovintiv

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

The idea behind SM Energy Co and Ovintiv 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.