Correlation Between Pure Cycle and Summit Midstream

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

By analyzing existing cross correlation between Pure Cycle and Summit Midstream, you can compare the effects of market volatilities on Pure Cycle and Summit Midstream 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 Pure Cycle with a short position of Summit Midstream. Check out your portfolio center. Please also check ongoing floating volatility patterns of Pure Cycle and Summit Midstream.

Diversification Opportunities for Pure Cycle and Summit Midstream

0.56

Correlation Coefficient

Pure Cycle  Summit Midstream

Very weak diversification

The 3 months correlation between Pure and Summit is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Pure Cycle and Summit Midstream in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Midstream and Pure Cycle 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 Pure Cycle are associated (or correlated) with Summit Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Midstream has no effect on the direction of Pure Cycle i.e., Pure Cycle and Summit Midstream go up and down completely randomly.

Pair Corralation between Pure Cycle and Summit Midstream

Given the investment horizon of 90 days Pure Cycle is expected to generate 3.42 times less return on investment than Summit Midstream. But when comparing it to its historical volatility, Pure Cycle is 1.72 times less risky than Summit Midstream. It trades about 0.06 of its potential returns per unit of risk. Summit Midstream is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,673  in Summit Midstream on October 7, 2024 and sell it today you would earn a total of  2,127  from holding Summit Midstream or generate 127.14% return on investment over 90 days.

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

Pure Cycle  vs.  Summit Midstream

Pure Cycle

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Pure Cycle are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Pure Cycle displayed solid returns over the last few months and may actually be approaching a breakup point.

Summit Midstream

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Midstream are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain primary indicators, Summit Midstream may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Pure Cycle and Summit Midstream

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

The idea behind Pure Cycle and Summit Midstream 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.