Correlation Between Western Midstream and Cheniere Energy

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

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

Diversification Opportunities for Western Midstream and Cheniere Energy

0.91

Correlation Coefficient

Western Midstream  Cheniere Energy

Almost no diversification

The 3 months correlation between Western and Cheniere is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Cheniere Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy Partners and Western Midstream 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 Western Midstream Partners are associated (or correlated) with Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy Partners has no effect on the direction of Western Midstream i.e., Western Midstream and Cheniere Energy go up and down completely randomly.

Pair Corralation between Western Midstream and Cheniere Energy

Considering the 90-day investment horizon Western Midstream is expected to generate 8.89 times less return on investment than Cheniere Energy. But when comparing it to its historical volatility, Western Midstream Partners is 1.53 times less risky than Cheniere Energy. It trades about 0.01 of its potential returns per unit of risk. Cheniere Energy Partners is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  5,748  in Cheniere Energy Partners on November 28, 2024 and sell it today you would earn a total of  609.00  from holding Cheniere Energy Partners or generate 10.59% return on investment over 90 days.

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

Western Midstream Partners  vs.  Cheniere Energy Partners

Western Midstream

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Western Midstream is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Cheniere Energy Partners

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy Partners are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Cheniere Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Western Midstream and Cheniere Energy

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

The idea behind Western Midstream Partners and Cheniere 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.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.