Correlation Between Cheniere Energy and Kinder Morgan

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

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

Diversification Opportunities for Cheniere Energy and Kinder Morgan

0.95

Correlation Coefficient

Cheniere Energy  Kinder Morgan

Almost no diversification

The 3 months correlation between Cheniere and Kinder is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy and Kinder Morgan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinder Morgan and Cheniere Energy 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 Cheniere Energy are associated (or correlated) with Kinder Morgan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinder Morgan has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and Kinder Morgan go up and down completely randomly.

Pair Corralation between Cheniere Energy and Kinder Morgan

Assuming the 90 days trading horizon Cheniere Energy is expected to generate 1.28 times less return on investment than Kinder Morgan. In addition to that, Cheniere Energy is 1.36 times more volatile than Kinder Morgan. It trades about 0.05 of its total potential returns per unit of risk. Kinder Morgan is currently generating about 0.08 per unit of volatility. If you would invest  1,521  in Kinder Morgan on September 22, 2024 and sell it today you would earn a total of  1,020  from holding Kinder Morgan or generate 67.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Cheniere Energy  vs.  Kinder Morgan

Cheniere Energy

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with Cheniere Energy and Kinder Morgan

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

The idea behind Cheniere Energy and Kinder Morgan 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.