Correlation Between KINDER and Western Midstream

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

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

Diversification Opportunities for KINDER and Western Midstream

0.44

Correlation Coefficient

KINDER  Western Midstream

Very weak diversification

The 3 months correlation between KINDER and Western is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding KINDER MORGAN ENERGY and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream and KINDER 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 ENERGY are associated (or correlated) with Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of KINDER i.e., KINDER and Western Midstream go up and down completely randomly.

Pair Corralation between KINDER and Western Midstream

Assuming the 90 days trading horizon KINDER is expected to generate 1.93 times less return on investment than Western Midstream. But when comparing it to its historical volatility, KINDER MORGAN ENERGY is 1.56 times less risky than Western Midstream. It trades about 0.07 of its potential returns per unit of risk. Western Midstream Partners is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,824  in Western Midstream Partners on December 23, 2024 and sell it today you would earn a total of  303.00  from holding Western Midstream Partners or generate 7.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

KINDER MORGAN ENERGY  vs.  Western Midstream Partners

KINDER MORGAN ENERGY

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KINDER MORGAN ENERGY are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, KINDER is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Western Midstream

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Western Midstream may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with KINDER and Western Midstream

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

The idea behind KINDER MORGAN ENERGY and Western Midstream 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.