Correlation Between Cheniere Energy and Hess Midstream

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

Diversification Opportunities for Cheniere Energy and Hess Midstream

0.85

Correlation Coefficient

Cheniere Energy  Hess Midstream

Very poor diversification

The 3 months correlation between Cheniere and Hess is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and Hess Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hess Midstream Partners 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 Hess Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hess Midstream Partners has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and Hess Midstream go up and down completely randomly.

Pair Corralation between Cheniere Energy and Hess Midstream

Considering the 90-day investment horizon Cheniere Energy Partners is expected to generate 1.47 times more return on investment than Hess Midstream. However, Cheniere Energy is 1.47 times more volatile than Hess Midstream Partners. It trades about 0.11 of its potential returns per unit of risk. Hess Midstream Partners is currently generating about 0.15 per unit of risk. If you would invest  5,788  in Cheniere Energy Partners on December 1, 2024 and sell it today you would earn a total of  827.00  from holding Cheniere Energy Partners or generate 14.29% 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.  Hess Midstream Partners

Cheniere Energy Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy Partners are ranked lower than 8 (%) 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.

Hess Midstream Partners

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Hess Midstream displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheniere Energy and Hess Midstream

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

The idea behind Cheniere Energy Partners and Hess Midstream Partners 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.