Correlation Between Cheniere Energy and TC Energy

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

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

Diversification Opportunities for Cheniere Energy and TC Energy

0.49

Correlation Coefficient

Cheniere Energy  TC Energy

Very weak diversification

The 3 months correlation between Cheniere and TRS is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy and TC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC Energy 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 TC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Energy has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and TC Energy go up and down completely randomly.

Pair Corralation between Cheniere Energy and TC Energy

Assuming the 90 days trading horizon Cheniere Energy is expected to generate 1.34 times more return on investment than TC Energy. However, Cheniere Energy is 1.34 times more volatile than TC Energy. It trades about 0.09 of its potential returns per unit of risk. TC Energy is currently generating about 0.04 per unit of risk. If you would invest  15,968  in Cheniere Energy on December 10, 2024 and sell it today you would earn a total of  3,857  from holding Cheniere Energy or generate 24.15% return on investment over 90 days.

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

Cheniere Energy  vs.  TC Energy

Cheniere Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheniere Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cheniere Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

TC Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days TC Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TC Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cheniere Energy and TC Energy

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

The idea behind Cheniere Energy and TC Energy 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.