Correlation Between SM Energy and Vitesse Energy

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

Diversification Opportunities for SM Energy and Vitesse Energy

0.62

Correlation Coefficient

SM Energy  Vitesse Energy

Poor diversification

The 3 months correlation between SM Energy and Vitesse is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding SM Energy Co and Vitesse Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vitesse 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 Vitesse Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vitesse Energy has no effect on the direction of SM Energy i.e., SM Energy and Vitesse Energy go up and down completely randomly.

Pair Corralation between SM Energy and Vitesse Energy

Allowing for the 90-day total investment horizon SM Energy is expected to generate 3.43 times less return on investment than Vitesse Energy. In addition to that, SM Energy is 1.7 times more volatile than Vitesse Energy. It trades about 0.03 of its total potential returns per unit of risk. Vitesse Energy is currently generating about 0.16 per unit of volatility. If you would invest  2,388  in Vitesse Energy on September 14, 2024 and sell it today you would earn a total of  368.00  from holding Vitesse Energy or generate 15.41% return on investment over 90 days.

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

SM Energy Co  vs.  Vitesse 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 very healthy primary indicators, SM Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Vitesse Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vitesse Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Vitesse Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SM Energy and Vitesse Energy

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

The idea behind SM Energy Co and Vitesse 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.