Correlation Between Kinder Morgan and NGL Energy

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

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

Diversification Opportunities for Kinder Morgan and NGL Energy

0.57

Correlation Coefficient

Kinder Morgan  NGL Energy

Very weak diversification

The 3 months correlation between Kinder and NGL is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Kinder Morgan 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 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 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 Kinder Morgan i.e., Kinder Morgan and NGL Energy go up and down completely randomly.

Pair Corralation between Kinder Morgan and NGL Energy

Considering the 90-day investment horizon Kinder Morgan is expected to under-perform the NGL Energy. In addition to that, Kinder Morgan is 1.88 times more volatile than NGL Energy Partners. It trades about -0.06 of its total potential returns per unit of risk. NGL Energy Partners is currently generating about 0.24 per unit of volatility. If you would invest  2,301  in NGL Energy Partners on September 26, 2024 and sell it today you would earn a total of  87.00  from holding NGL Energy Partners or generate 3.78% return on investment over 90 days.

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

Kinder Morgan  vs.  NGL Energy Partners

Kinder Morgan

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Kinder Morgan are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak primary indicators, Kinder Morgan demonstrated solid returns over the last few months and may actually be approaching a breakup point.

NGL Energy Partners

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, NGL Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Kinder Morgan and NGL Energy

The main advantage of trading using opposite Kinder Morgan and NGL Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kinder Morgan 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 Kinder Morgan 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.