Correlation Between Kinder Morgan and SSE PLC

Can any of the company-specific risk be diversified away by investing in both Kinder Morgan and SSE PLC 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 Kinder Morgan and SSE PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Kinder Morgan and SSE PLC ADR, you can compare the effects of market volatilities on Kinder Morgan and SSE PLC 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 Kinder Morgan with a short position of SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Kinder Morgan and SSE PLC.

Diversification Opportunities for Kinder Morgan and SSE PLC

-0.78

Correlation Coefficient

Kinder Morgan  SSE PLC

Pay attention - limited upside

The 3 months correlation between Kinder and SSE is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Kinder Morgan and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR and Kinder Morgan 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 Kinder Morgan are associated (or correlated) with SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of Kinder Morgan i.e., Kinder Morgan and SSE PLC go up and down completely randomly.

Pair Corralation between Kinder Morgan and SSE PLC

Assuming the 90 days horizon Kinder Morgan is expected to under-perform the SSE PLC. But the stock apears to be less risky and, when comparing its historical volatility, Kinder Morgan is 1.09 times less risky than SSE PLC. The stock trades about -0.26 of its potential returns per unit of risk. The SSE PLC ADR is currently generating about -0.24 of returns per unit of risk over similar time horizon. If you would invest  2,000  in SSE PLC ADR on September 22, 2024 and sell it today you would lose (140.00) from holding SSE PLC ADR or give up 7.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Kinder Morgan  vs.  SSE PLC ADR

Kinder Morgan

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kinder Morgan are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Kinder Morgan reported solid returns over the last few months and may actually be approaching a breakup point.

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Kinder Morgan and SSE PLC

The main advantage of trading using opposite Kinder Morgan and SSE PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinder Morgan position performs unexpectedly, SSE PLC 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 SSE PLC will offset losses from the drop in SSE PLC's long position.

The idea behind Kinder Morgan and SSE PLC ADR pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.