Correlation Between Western Midstream and NGL Energy
Can any of the company-specific risk be diversified away by investing in both Western Midstream 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 Western Midstream and NGL 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 NGL Energy Partners, you can compare the effects of market volatilities on Western Midstream 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 Western Midstream with a short position of NGL Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and NGL Energy.
Diversification Opportunities for Western Midstream and NGL Energy
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Western and NGL is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners 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 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 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 Western Midstream i.e., Western Midstream and NGL Energy go up and down completely randomly.
Pair Corralation between Western Midstream and NGL Energy
Considering the 90-day investment horizon Western Midstream Partners is expected to generate 0.71 times more return on investment than NGL Energy. However, Western Midstream Partners is 1.4 times less risky than NGL Energy. It trades about 0.11 of its potential returns per unit of risk. NGL Energy Partners is currently generating about -0.04 per unit of risk. If you would invest 2,680 in Western Midstream Partners on August 28, 2024 and sell it today you would earn a total of 1,152 from holding Western Midstream Partners or generate 42.99% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Western Midstream Partners vs. NGL Energy Partners
Performance |
| Timeline |
| Western Midstream |
| NGL Energy Partners |
Western Midstream and NGL Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Western Midstream and NGL Energy
The main advantage of trading using opposite Western Midstream and NGL Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Midstream 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.| Western Midstream vs. DT Midstream | Western Midstream vs. MPLX LP | Western Midstream vs. Plains All American | Western Midstream vs. Genesis Energy LP |
| NGL Energy vs. NGL Energy Partners | NGL Energy vs. Dynagas LNG Partners | NGL Energy vs. Martin Midstream Partners | NGL Energy vs. Kinetik Holdings |
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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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