Correlation Between Antero Midstream and NGL Energy

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

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

Diversification Opportunities for Antero Midstream and NGL Energy

0.68

Correlation Coefficient

Antero Midstream  NGL Energy

Poor diversification

The 3 months correlation between Antero and NGL is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Antero Midstream Partners and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners and Antero 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 Antero Midstream Partners are associated (or correlated) with NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of Antero Midstream i.e., Antero Midstream and NGL Energy go up and down completely randomly.

Pair Corralation between Antero Midstream and NGL Energy

Allowing for the 90-day total investment horizon Antero Midstream is expected to generate 1.15 times less return on investment than NGL Energy. In addition to that, Antero Midstream is 1.42 times more volatile than NGL Energy Partners. It trades about 0.09 of its total potential returns per unit of risk. NGL Energy Partners is currently generating about 0.14 per unit of volatility. If you would invest  1,762  in NGL Energy Partners on September 4, 2024 and sell it today you would earn a total of  607.00  from holding NGL Energy Partners or generate 34.45% return on investment over 90 days.

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

Antero Midstream Partners  vs.  NGL Energy Partners

Antero Midstream Partners

Risk-Adjusted Performance

7 of 100

OK

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

NGL Energy Partners

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, NGL Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Antero Midstream and NGL Energy

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

The idea behind Antero Midstream Partners and NGL 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.

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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.