Correlation Between Western Midstream and El Paso
Can any of the company-specific risk be diversified away by investing in both Western Midstream and El Paso 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 El Paso 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 El Paso Energy, you can compare the effects of market volatilities on Western Midstream and El Paso 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 El Paso. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and El Paso.
Diversification Opportunities for Western Midstream and El Paso
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Western and EP-PC is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and El Paso Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Paso 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 El Paso. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Paso Energy has no effect on the direction of Western Midstream i.e., Western Midstream and El Paso go up and down completely randomly.
Pair Corralation between Western Midstream and El Paso
Considering the 90-day investment horizon Western Midstream Partners is expected to generate 4.4 times more return on investment than El Paso. However, Western Midstream is 4.4 times more volatile than El Paso Energy. It trades about 0.16 of its potential returns per unit of risk. El Paso Energy is currently generating about 0.11 per unit of risk. If you would invest 3,669 in Western Midstream Partners on November 1, 2024 and sell it today you would earn a total of 618.00 from holding Western Midstream Partners or generate 16.84% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Midstream Partners vs. El Paso Energy
Performance |
| Timeline |
| Western Midstream |
| El Paso Energy |
Western Midstream and El Paso Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Midstream and El Paso
The main advantage of trading using opposite Western Midstream and El Paso positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Midstream position performs unexpectedly, El Paso 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 El Paso will offset losses from the drop in El Paso's long position.| Western Midstream vs. DT Midstream | Western Midstream vs. MPLX LP | Western Midstream vs. Plains All American | Western Midstream vs. Genesis Energy 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.
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