Correlation Between Western Midstream and Alliant Energy

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

Diversification Opportunities for Western Midstream and Alliant Energy

0.4

Correlation Coefficient

Western Midstream  Alliant Energy

Very weak diversification

The 3 months correlation between Western and Alliant is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Alliant Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alliant 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 Alliant Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alliant Energy Corp has no effect on the direction of Western Midstream i.e., Western Midstream and Alliant Energy go up and down completely randomly.

Pair Corralation between Western Midstream and Alliant Energy

Considering the 90-day investment horizon Western Midstream Partners is expected to under-perform the Alliant Energy. In addition to that, Western Midstream is 1.42 times more volatile than Alliant Energy Corp. It trades about -0.02 of its total potential returns per unit of risk. Alliant Energy Corp is currently generating about 0.08 per unit of volatility. If you would invest  5,374  in Alliant Energy Corp on September 21, 2024 and sell it today you would earn a total of  528.50  from holding Alliant Energy Corp or generate 9.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.07%
Values	Daily Returns

Western Midstream Partners  vs.  Alliant Energy Corp

Western Midstream

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Midstream Partners has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Alliant Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alliant Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Alliant Energy is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Western Midstream and Alliant Energy

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

The idea behind Western Midstream Partners and Alliant 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.