Correlation Between Cheniere Energy and Energy Transfer

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

Diversification Opportunities for Cheniere Energy and Energy Transfer

0.05

Correlation Coefficient

Cheniere Energy  Energy Transfer

Significant diversification

The 3 months correlation between Cheniere and Energy is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and Energy Transfer LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Transfer LP 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 Energy Transfer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Transfer LP has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and Energy Transfer go up and down completely randomly.

Pair Corralation between Cheniere Energy and Energy Transfer

Considering the 90-day investment horizon Cheniere Energy Partners is expected to generate 1.38 times more return on investment than Energy Transfer. However, Cheniere Energy is 1.38 times more volatile than Energy Transfer LP. It trades about 0.14 of its potential returns per unit of risk. Energy Transfer LP is currently generating about -0.01 per unit of risk. If you would invest  5,290  in Cheniere Energy Partners on December 28, 2024 and sell it today you would earn a total of  1,079  from holding Cheniere Energy Partners or generate 20.4% return on investment over 90 days.

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

Cheniere Energy Partners  vs.  Energy Transfer LP

Cheniere Energy Partners

Risk-Adjusted Performance

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 conflicting basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Energy Transfer LP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Transfer LP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Energy Transfer is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cheniere Energy and Energy Transfer

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

The idea behind Cheniere Energy Partners and Energy Transfer LP 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.