Correlation Between Chesapeake Energy and NGL Energy
Can any of the company-specific risk be diversified away by investing in both Chesapeake Energy and NGL 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 Chesapeake Energy and NGL Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Chesapeake Energy and NGL Energy Partners, you can compare the effects of market volatilities on Chesapeake Energy and NGL 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 Chesapeake Energy with a short position of NGL Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Chesapeake Energy and NGL Energy.
Diversification Opportunities for Chesapeake Energy and NGL Energy
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Chesapeake and NGL is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Chesapeake Energy and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners and Chesapeake 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 Chesapeake Energy are associated (or correlated) with NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of Chesapeake Energy i.e., Chesapeake Energy and NGL Energy go up and down completely randomly.
Pair Corralation between Chesapeake Energy and NGL Energy
Assuming the 90 days horizon Chesapeake Energy is expected to generate 69.32 times more return on investment than NGL Energy. However, Chesapeake Energy is 69.32 times more volatile than NGL Energy Partners. It trades about 0.13 of its potential returns per unit of risk. NGL Energy Partners is currently generating about 0.13 per unit of risk. If you would invest 8,938 in Chesapeake Energy on August 26, 2024 and sell it today you would lose (1,749) from holding Chesapeake Energy or give up 19.57% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 50.7% |
| Values | Daily Returns |
Chesapeake Energy vs. NGL Energy Partners
Performance |
| Timeline |
| Chesapeake Energy |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Strong
| NGL Energy Partners |
Chesapeake Energy and NGL Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Chesapeake Energy and NGL Energy
The main advantage of trading using opposite Chesapeake Energy and NGL Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chesapeake Energy position performs unexpectedly, NGL 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 NGL Energy will offset losses from the drop in NGL Energy's long position.The idea behind Chesapeake Energy and NGL Energy Partners 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.| NGL Energy vs. NGL Energy Partners | NGL Energy vs. Dynagas LNG Partners | NGL Energy vs. GasLog Partners LP | NGL Energy vs. GasLog Partners LP |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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