Correlation Between Cheniere Energy and Southern California

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

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

Diversification Opportunities for Cheniere Energy and Southern California

-0.21

Correlation Coefficient

Cheniere Energy  Southern California

Very good diversification

The 3 months correlation between Cheniere and Southern is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy and Southern California Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California Gas and Cheniere 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 Cheniere Energy are associated (or correlated) with Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California Gas has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and Southern California go up and down completely randomly.

Pair Corralation between Cheniere Energy and Southern California

Considering the 90-day investment horizon Cheniere Energy is expected to generate 0.69 times more return on investment than Southern California. However, Cheniere Energy is 1.46 times less risky than Southern California. It trades about 0.31 of its potential returns per unit of risk. Southern California Gas is currently generating about -0.01 per unit of risk. If you would invest  18,591  in Cheniere Energy on October 24, 2024 and sell it today you would earn a total of  6,685  from holding Cheniere Energy or generate 35.96% return on investment over 90 days.

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

Cheniere Energy  vs.  Southern California Gas

Cheniere Energy

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Southern California is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Cheniere Energy and Southern California

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

The idea behind Cheniere Energy and Southern California Gas 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.