Correlation Between Alerian Energy and NISOURCE

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

By analyzing existing cross correlation between Alerian Energy Infrastructure and NISOURCE FIN P, you can compare the effects of market volatilities on Alerian Energy and NISOURCE 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 Alerian Energy with a short position of NISOURCE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alerian Energy and NISOURCE.

Diversification Opportunities for Alerian Energy and NISOURCE

-0.05

Correlation Coefficient

Alerian Energy  NISOURCE

Good diversification

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

Pair Corralation between Alerian Energy and NISOURCE

Given the investment horizon of 90 days Alerian Energy Infrastructure is expected to generate 1.37 times more return on investment than NISOURCE. However, Alerian Energy is 1.37 times more volatile than NISOURCE FIN P. It trades about 0.1 of its potential returns per unit of risk. NISOURCE FIN P is currently generating about 0.03 per unit of risk. If you would invest  3,072  in Alerian Energy Infrastructure on December 30, 2024 and sell it today you would earn a total of  211.00  from holding Alerian Energy Infrastructure or generate 6.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	46.77%
Values	Daily Returns

Alerian Energy Infrastructure  vs.  NISOURCE FIN P

Alerian Energy Infra

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Alerian Energy Infrastructure are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Alerian Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NISOURCE FIN P

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NISOURCE FIN P are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NISOURCE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Alerian Energy and NISOURCE

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

The idea behind Alerian Energy Infrastructure and NISOURCE FIN P 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.