Correlation Between Southwest Gas and Western Midstream
Can any of the company-specific risk be diversified away by investing in both Southwest Gas and Western Midstream 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 Southwest Gas and Western Midstream into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Southwest Gas Holdings and Western Midstream Partners, you can compare the effects of market volatilities on Southwest Gas and Western Midstream 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 Southwest Gas with a short position of Western Midstream. Check out your portfolio center. Please also check ongoing floating volatility patterns of Southwest Gas and Western Midstream.
Diversification Opportunities for Southwest Gas and Western Midstream
0.35 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Southwest and Western is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Southwest Gas Holdings and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream and Southwest Gas 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 Southwest Gas Holdings are associated (or correlated) with Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of Southwest Gas i.e., Southwest Gas and Western Midstream go up and down completely randomly.
Pair Corralation between Southwest Gas and Western Midstream
Considering the 90-day investment horizon Southwest Gas is expected to generate 2.74 times less return on investment than Western Midstream. But when comparing it to its historical volatility, Southwest Gas Holdings is 1.06 times less risky than Western Midstream. It trades about 0.03 of its potential returns per unit of risk. Western Midstream Partners is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 3,407 in Western Midstream Partners on September 3, 2024 and sell it today you would earn a total of 664.00 from holding Western Midstream Partners or generate 19.49% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Southwest Gas Holdings vs. Western Midstream Partners
Performance |
| Timeline |
| Southwest Gas Holdings |
| Western Midstream |
Southwest Gas and Western Midstream Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Southwest Gas and Western Midstream
The main advantage of trading using opposite Southwest Gas and Western Midstream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southwest Gas position performs unexpectedly, Western Midstream 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 Western Midstream will offset losses from the drop in Western Midstream's long position.| Southwest Gas vs. NewJersey Resources | Southwest Gas vs. Northwest Natural Gas | Southwest Gas vs. NorthWestern | Southwest Gas vs. Chesapeake Utilities |
| Western Midstream vs. MPLX LP | Western Midstream vs. Plains All American | Western Midstream vs. SPACE | Western Midstream vs. T Rowe Price |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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