Correlation Between Cheniere Energy and Southwest Gas

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

Diversification Opportunities for Cheniere Energy and Southwest Gas

0.76

Correlation Coefficient

Cheniere Energy  Southwest Gas

Poor diversification

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

Pair Corralation between Cheniere Energy and Southwest Gas

Considering the 90-day investment horizon Cheniere Energy Partners is expected to generate 1.7 times more return on investment than Southwest Gas. However, Cheniere Energy is 1.7 times more volatile than Southwest Gas Holdings. It trades about 0.14 of its potential returns per unit of risk. Southwest Gas Holdings is currently generating about 0.06 per unit of risk. If you would invest  5,290  in Cheniere Energy Partners on December 29, 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	Significant
Accuracy	100.0%
Values	Daily Returns

Cheniere Energy Partners  vs.  Southwest Gas Holdings

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

Southwest Gas Holdings

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Southwest Gas Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Southwest Gas is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Cheniere Energy and Southwest Gas

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

The idea behind Cheniere Energy Partners and Southwest Gas Holdings 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.