Correlation Between Western Midstream and Icon Energy

Can any of the company-specific risk be diversified away by investing in both Western Midstream and Icon 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 Icon 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 Icon Energy Corp, you can compare the effects of market volatilities on Western Midstream and Icon 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 Icon Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Midstream and Icon Energy.

Diversification Opportunities for Western Midstream and Icon Energy

0.51

Correlation Coefficient

Western Midstream  Icon Energy

Very weak diversification

The 3 months correlation between Western and Icon is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Icon Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Icon Energy Corp 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 Icon Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Icon Energy Corp has no effect on the direction of Western Midstream i.e., Western Midstream and Icon Energy go up and down completely randomly.

Pair Corralation between Western Midstream and Icon Energy

Considering the 90-day investment horizon Western Midstream Partners is expected to generate 0.29 times more return on investment than Icon Energy. However, Western Midstream Partners is 3.44 times less risky than Icon Energy. It trades about 0.04 of its potential returns per unit of risk. Icon Energy Corp is currently generating about -0.06 per unit of risk. If you would invest  3,676  in Western Midstream Partners on September 19, 2024 and sell it today you would earn a total of  262.00  from holding Western Midstream Partners or generate 7.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	88.1%
Values	Daily Returns

Western Midstream Partners  vs.  Icon Energy Corp

Western Midstream

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 3 (%) 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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

Icon Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Icon Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Icon Energy is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Western Midstream and Icon Energy

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

The idea behind Western Midstream Partners and Icon Energy Corp 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.