Correlation Between Dynagas LNG and Cheniere Energy

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

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

Diversification Opportunities for Dynagas LNG and Cheniere Energy

0.24

Correlation Coefficient

Dynagas LNG  Cheniere Energy

Modest diversification

The 3 months correlation between Dynagas and Cheniere is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Dynagas LNG Partners and Cheniere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy and Dynagas LNG 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 Dynagas LNG Partners are associated (or correlated) with Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy has no effect on the direction of Dynagas LNG i.e., Dynagas LNG and Cheniere Energy go up and down completely randomly.

Pair Corralation between Dynagas LNG and Cheniere Energy

Given the investment horizon of 90 days Dynagas LNG Partners is expected to under-perform the Cheniere Energy. But the stock apears to be less risky and, when comparing its historical volatility, Dynagas LNG Partners is 1.03 times less risky than Cheniere Energy. The stock trades about -0.24 of its potential returns per unit of risk. The Cheniere Energy is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  21,307  in Cheniere Energy on December 29, 2024 and sell it today you would earn a total of  1,372  from holding Cheniere Energy or generate 6.44% return on investment over 90 days.

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

Dynagas LNG Partners  vs.  Cheniere Energy

Dynagas LNG Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dynagas LNG Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Cheniere Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cheniere Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Dynagas LNG and Cheniere Energy

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

The idea behind Dynagas LNG Partners and Cheniere Energy 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.