Correlation Between DT Midstream and Energy Transfer

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

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

Diversification Opportunities for DT Midstream and Energy Transfer

0.75

Correlation Coefficient

DT Midstream  Energy Transfer

Poor diversification

The 3 months correlation between DTM and Energy is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding DT Midstream 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 DT Midstream 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 DT Midstream 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 DT Midstream i.e., DT Midstream and Energy Transfer go up and down completely randomly.

Pair Corralation between DT Midstream and Energy Transfer

Considering the 90-day investment horizon DT Midstream is expected to generate 1.41 times more return on investment than Energy Transfer. However, DT Midstream is 1.41 times more volatile than Energy Transfer LP. It trades about 0.02 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  9,969  in DT Midstream on December 26, 2024 and sell it today you would earn a total of  83.00  from holding DT Midstream or generate 0.83% return on investment over 90 days.

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

DT Midstream  vs.  Energy Transfer LP

DT Midstream

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in DT Midstream are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, DT Midstream is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

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 DT Midstream and Energy Transfer

The main advantage of trading using opposite DT Midstream and Energy Transfer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DT Midstream 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 DT Midstream 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.