Correlation Between Western Midstream and CenterPoint Energy
Can any of the company-specific risk be diversified away by investing in both Western Midstream and CenterPoint 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 Western Midstream and CenterPoint Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Western Midstream Partners and CenterPoint Energy, you can compare the effects of market volatilities on Western Midstream and CenterPoint 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 Western Midstream with a short position of CenterPoint Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and CenterPoint Energy.
Diversification Opportunities for Western Midstream and CenterPoint Energy
0.36 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Western and CenterPoint is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and CenterPoint Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CenterPoint Energy and Western Midstream 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 Western Midstream Partners are associated (or correlated) with CenterPoint Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CenterPoint Energy has no effect on the direction of Western Midstream i.e., Western Midstream and CenterPoint Energy go up and down completely randomly.
Pair Corralation between Western Midstream and CenterPoint Energy
Considering the 90-day investment horizon Western Midstream Partners is expected to generate 1.24 times more return on investment than CenterPoint Energy. However, Western Midstream is 1.24 times more volatile than CenterPoint Energy. It trades about 0.08 of its potential returns per unit of risk. CenterPoint Energy is currently generating about 0.02 per unit of risk. If you would invest 2,242 in Western Midstream Partners on September 3, 2024 and sell it today you would earn a total of 1,829 from holding Western Midstream Partners or generate 81.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Midstream Partners vs. CenterPoint Energy
Performance |
| Timeline |
| Western Midstream |
| CenterPoint Energy |
Western Midstream and CenterPoint Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Midstream and CenterPoint Energy
The main advantage of trading using opposite Western Midstream and CenterPoint Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Midstream position performs unexpectedly, CenterPoint 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 CenterPoint Energy will offset losses from the drop in CenterPoint Energy's long position.| Western Midstream vs. MPLX LP | Western Midstream vs. Plains All American | Western Midstream vs. SPACE | Western Midstream vs. T Rowe Price |
| CenterPoint Energy vs. DTE Energy | CenterPoint Energy vs. Alliant Energy Corp | CenterPoint Energy vs. Ameren Corp | CenterPoint Energy vs. Pinnacle West Capital |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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