Correlation Between Energy Transfer and NGL Energy

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

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

Diversification Opportunities for Energy Transfer and NGL Energy

0.65

Correlation Coefficient

Energy Transfer  NGL Energy

Poor diversification

The 3 months correlation between Energy and NGL is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Energy Transfer LP and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners and Energy Transfer 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 Energy Transfer LP are associated (or correlated) with NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of Energy Transfer i.e., Energy Transfer and NGL Energy go up and down completely randomly.

Pair Corralation between Energy Transfer and NGL Energy

Allowing for the 90-day total investment horizon Energy Transfer LP is expected to generate 1.11 times more return on investment than NGL Energy. However, Energy Transfer is 1.11 times more volatile than NGL Energy Partners. It trades about 0.34 of its potential returns per unit of risk. NGL Energy Partners is currently generating about 0.07 per unit of risk. If you would invest  1,562  in Energy Transfer LP on September 4, 2024 and sell it today you would earn a total of  380.00  from holding Energy Transfer LP or generate 24.33% return on investment over 90 days.

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

Energy Transfer LP  vs.  NGL Energy Partners

Energy Transfer LP

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Transfer unveiled solid returns over the last few months and may actually be approaching a breakup point.

NGL Energy Partners

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, NGL Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Energy Transfer and NGL Energy

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

The idea behind Energy Transfer LP and NGL Energy 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.