Correlation Between Cheniere Energy and Black Hills

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

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

Diversification Opportunities for Cheniere Energy and Black Hills

0.76

Correlation Coefficient

Cheniere Energy  Black Hills

Poor diversification

The 3 months correlation between Cheniere and Black is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and Black Hills in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Black Hills 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 Partners are associated (or correlated) with Black Hills. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Black Hills has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and Black Hills go up and down completely randomly.

Pair Corralation between Cheniere Energy and Black Hills

Considering the 90-day investment horizon Cheniere Energy Partners is expected to generate 1.18 times more return on investment than Black Hills. However, Cheniere Energy is 1.18 times more volatile than Black Hills. It trades about 0.25 of its potential returns per unit of risk. Black Hills is currently generating about 0.13 per unit of risk. If you would invest  4,748  in Cheniere Energy Partners on September 2, 2024 and sell it today you would earn a total of  1,077  from holding Cheniere Energy Partners or generate 22.68% return on investment over 90 days.

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

Cheniere Energy Partners  vs.  Black Hills

Cheniere Energy Partners

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy Partners are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Black Hills

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward-looking signals, Black Hills may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cheniere Energy and Black Hills

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

The idea behind Cheniere Energy Partners and Black Hills 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.

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 Bonds Directory module to find actively traded corporate debentures issued by US companies.