Correlation Between SM Energy and Tamboran Resources

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

Diversification Opportunities for SM Energy and Tamboran Resources

-0.36

Correlation Coefficient

SM Energy  Tamboran Resources

Very good diversification

The 3 months correlation between SM Energy and Tamboran is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Tamboran Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tamboran 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 Tamboran Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tamboran Resources has no effect on the direction of SM Energy i.e., SM Energy and Tamboran Resources go up and down completely randomly.

Pair Corralation between SM Energy and Tamboran Resources

Allowing for the 90-day total investment horizon SM Energy Co is expected to generate 1.03 times more return on investment than Tamboran Resources. However, SM Energy is 1.03 times more volatile than Tamboran Resources. It trades about 0.01 of its potential returns per unit of risk. Tamboran Resources is currently generating about -0.06 per unit of risk. If you would invest  4,636  in SM Energy Co on September 3, 2024 and sell it today you would lose (117.00) from holding SM Energy Co or give up 2.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	88.0%
Values	Daily Returns

SM Energy Co  vs.  Tamboran Resources

SM Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SM Energy Co are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain primary indicators, SM Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tamboran Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tamboran Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's fundamental drivers remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with SM Energy and Tamboran Resources

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

The idea behind SM Energy Co and Tamboran 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.