Correlation Between NGL Energy and Chesapeake Energy
Can any of the company-specific risk be diversified away by investing in both NGL Energy and Chesapeake 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 NGL Energy and Chesapeake Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NGL Energy Partners and Chesapeake Energy, you can compare the effects of market volatilities on NGL Energy and Chesapeake 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 NGL Energy with a short position of Chesapeake Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of NGL Energy and Chesapeake Energy.
Diversification Opportunities for NGL Energy and Chesapeake Energy
-0.3 | Correlation Coefficient |
Very good diversification
The 3 months correlation between NGL and Chesapeake is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy and NGL 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 NGL Energy Partners are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of NGL Energy i.e., NGL Energy and Chesapeake Energy go up and down completely randomly.
Pair Corralation between NGL Energy and Chesapeake Energy
Assuming the 90 days trading horizon NGL Energy is expected to generate 68.1 times less return on investment than Chesapeake Energy. But when comparing it to its historical volatility, NGL Energy Partners is 69.32 times less risky than Chesapeake Energy. It trades about 0.13 of its potential returns per unit of risk. Chesapeake Energy is currently generating about 0.13 of returns per unit of risk over similar time horizon. 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 |
NGL Energy Partners vs. Chesapeake Energy
Performance |
| Timeline |
| NGL Energy Partners |
| Chesapeake Energy |
Risk-Adjusted Performance
0 of 100
Weak | Strong |
Very Strong
NGL Energy and Chesapeake Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NGL Energy and Chesapeake Energy
The main advantage of trading using opposite NGL Energy and Chesapeake Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NGL Energy position performs unexpectedly, Chesapeake 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 Chesapeake Energy will offset losses from the drop in Chesapeake Energy's long position.| 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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