Correlation Between Kinder Morgan and Enterprise Products

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

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

Diversification Opportunities for Kinder Morgan and Enterprise Products

0.3

Correlation Coefficient

Kinder Morgan  Enterprise Products

Weak diversification

The 3 months correlation between Kinder and Enterprise is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Kinder Morgan and Enterprise Products Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Products and Kinder Morgan 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 Kinder Morgan are associated (or correlated) with Enterprise Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Products has no effect on the direction of Kinder Morgan i.e., Kinder Morgan and Enterprise Products go up and down completely randomly.

Pair Corralation between Kinder Morgan and Enterprise Products

Considering the 90-day investment horizon Kinder Morgan is expected to under-perform the Enterprise Products. In addition to that, Kinder Morgan is 1.78 times more volatile than Enterprise Products Partners. It trades about -0.05 of its total potential returns per unit of risk. Enterprise Products Partners is currently generating about -0.02 per unit of volatility. If you would invest  3,389  in Enterprise Products Partners on November 28, 2024 and sell it today you would lose (62.00) from holding Enterprise Products Partners or give up 1.83% of portfolio value over 90 days.

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

Kinder Morgan  vs.  Enterprise Products Partners

Kinder Morgan

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kinder Morgan has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Enterprise Products

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enterprise Products Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Enterprise Products is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kinder Morgan and Enterprise Products

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

The idea behind Kinder Morgan and Enterprise Products 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.