Correlation Between Exxon and SM Energy
Can any of the company-specific risk be diversified away by investing in both Exxon and SM 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 Exxon and SM Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Exxon Mobil Corp and SM Energy Co, you can compare the effects of market volatilities on Exxon and SM 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 Exxon with a short position of SM Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Exxon and SM Energy.
Diversification Opportunities for Exxon and SM Energy
Almost no diversification
The 3 months correlation between Exxon and SM Energy is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Exxon Mobil Corp and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM Energy and Exxon 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 Exxon Mobil Corp are associated (or correlated) with SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of Exxon i.e., Exxon and SM Energy go up and down completely randomly.
Pair Corralation between Exxon and SM Energy
Considering the 90-day investment horizon Exxon Mobil Corp is expected to generate 0.58 times more return on investment than SM Energy. However, Exxon Mobil Corp is 1.74 times less risky than SM Energy. It trades about 0.38 of its potential returns per unit of risk. SM Energy Co is currently generating about 0.11 per unit of risk. If you would invest 11,379 in Exxon Mobil Corp on January 26, 2024 and sell it today you would earn a total of 726.00 from holding Exxon Mobil Corp or generate 6.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Exxon Mobil Corp vs. SM Energy Co
Performance |
| Timeline |
| Exxon Mobil Corp |
| SM Energy |
Exxon and SM Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Exxon and SM Energy
The main advantage of trading using opposite Exxon and SM Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Exxon position performs unexpectedly, SM 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 SM Energy will offset losses from the drop in SM Energy's long position.| Exxon vs. Shell PLC ADR | Exxon vs. BP PLC ADR | Exxon vs. Suncor Energy | Exxon vs. Petroleo Brasileiro Petrobras |
| SM Energy vs. Vital Energy | SM Energy vs. Permian Resources | SM Energy vs. Matador Resources | SM Energy vs. Obsidian Energy |
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 Transaction History module to view history of all your transactions and understand their impact on performance.
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