Correlation Between InfraCap MLP and Alerian Energy
Can any of the company-specific risk be diversified away by investing in both InfraCap MLP and Alerian 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 InfraCap MLP and Alerian Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between InfraCap MLP ETF and Alerian Energy Infrastructure, you can compare the effects of market volatilities on InfraCap MLP and Alerian 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 InfraCap MLP with a short position of Alerian Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of InfraCap MLP and Alerian Energy.
Diversification Opportunities for InfraCap MLP and Alerian Energy
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between InfraCap and Alerian is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding InfraCap MLP ETF and Alerian Energy Infrastructure in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alerian Energy Infra and InfraCap MLP 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 InfraCap MLP ETF are associated (or correlated) with Alerian Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alerian Energy Infra has no effect on the direction of InfraCap MLP i.e., InfraCap MLP and Alerian Energy go up and down completely randomly.
Pair Corralation between InfraCap MLP and Alerian Energy
Given the investment horizon of 90 days InfraCap MLP ETF is expected to generate 1.35 times more return on investment than Alerian Energy. However, InfraCap MLP is 1.35 times more volatile than Alerian Energy Infrastructure. It trades about 0.09 of its potential returns per unit of risk. Alerian Energy Infrastructure is currently generating about 0.12 per unit of risk. If you would invest 2,700 in InfraCap MLP ETF on August 27, 2024 and sell it today you would earn a total of 1,845 from holding InfraCap MLP ETF or generate 68.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
InfraCap MLP ETF vs. Alerian Energy Infrastructure
Performance |
| Timeline |
| InfraCap MLP ETF |
| Alerian Energy Infra |
InfraCap MLP and Alerian Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with InfraCap MLP and Alerian Energy
The main advantage of trading using opposite InfraCap MLP and Alerian Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if InfraCap MLP position performs unexpectedly, Alerian 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 Alerian Energy will offset losses from the drop in Alerian Energy's long position.| InfraCap MLP vs. Virtus InfraCap Preferred | InfraCap MLP vs. Global X MLP | InfraCap MLP vs. Amplify High Income | InfraCap MLP vs. Alerian MLP ETF |
| Alerian Energy vs. Global X MLP | Alerian Energy vs. Tortoise North American | Alerian Energy vs. First Trust North | Alerian Energy vs. Global X MLP |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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