Correlation Between NGL Energy and Dynagas LNG

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

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

Diversification Opportunities for NGL Energy and Dynagas LNG

0.37

Correlation Coefficient

NGL Energy  Dynagas LNG

Weak diversification

The 3 months correlation between NGL and Dynagas is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and Dynagas LNG Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dynagas LNG Partners and NGL 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 NGL Energy Partners are associated (or correlated) with Dynagas LNG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dynagas LNG Partners has no effect on the direction of NGL Energy i.e., NGL Energy and Dynagas LNG go up and down completely randomly.

Pair Corralation between NGL Energy and Dynagas LNG

Assuming the 90 days trading horizon NGL Energy Partners is expected to generate 1.05 times more return on investment than Dynagas LNG. However, NGL Energy is 1.05 times more volatile than Dynagas LNG Partners. It trades about 0.13 of its potential returns per unit of risk. Dynagas LNG Partners is currently generating about -0.02 per unit of risk. If you would invest  2,295  in NGL Energy Partners on December 1, 2024 and sell it today you would earn a total of  89.00  from holding NGL Energy Partners or generate 3.88% return on investment over 90 days.

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

NGL Energy Partners  vs.  Dynagas LNG Partners

NGL Energy Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 10 (%) 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.

Dynagas LNG Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days Dynagas LNG Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Dynagas LNG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with NGL Energy and Dynagas LNG

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

The idea behind NGL Energy Partners and Dynagas LNG 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.