Correlation Between Cheniere Energy and DT Midstream

Can any of the company-specific risk be diversified away by investing in both Cheniere Energy and DT Midstream 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 DT Midstream 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 DT Midstream, you can compare the effects of market volatilities on Cheniere Energy and DT Midstream 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 DT Midstream. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheniere Energy and DT Midstream.

Diversification Opportunities for Cheniere Energy and DT Midstream

0.84

Correlation Coefficient

Cheniere Energy  DT Midstream

Very poor diversification

The 3 months correlation between Cheniere and DTM is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and DT Midstream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DT Midstream 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 DT Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DT Midstream has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and DT Midstream go up and down completely randomly.

Pair Corralation between Cheniere Energy and DT Midstream

Considering the 90-day investment horizon Cheniere Energy is expected to generate 4.97 times less return on investment than DT Midstream. In addition to that, Cheniere Energy is 1.39 times more volatile than DT Midstream. It trades about 0.02 of its total potential returns per unit of risk. DT Midstream is currently generating about 0.11 per unit of volatility. If you would invest  5,026  in DT Midstream on September 20, 2024 and sell it today you would earn a total of  4,831  from holding DT Midstream or generate 96.12% return on investment over 90 days.

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

Cheniere Energy Partners  vs.  DT Midstream

Cheniere Energy Partners

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

DT Midstream

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in DT Midstream are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, DT Midstream displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheniere Energy and DT Midstream

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

The idea behind Cheniere Energy Partners and DT Midstream 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.