Correlation Between Cheniere Energy and WEC Energy

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

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

Diversification Opportunities for Cheniere Energy and WEC Energy

0.6

Correlation Coefficient

Cheniere Energy  WEC Energy

Poor diversification

The 3 months correlation between Cheniere and WEC is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Cheniere Energy Partners and WEC Energy Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WEC Energy Group and Cheniere Energy 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 Cheniere Energy Partners are associated (or correlated) with WEC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WEC Energy Group has no effect on the direction of Cheniere Energy i.e., Cheniere Energy and WEC Energy go up and down completely randomly.

Pair Corralation between Cheniere Energy and WEC Energy

Considering the 90-day investment horizon Cheniere Energy Partners is expected to generate 1.44 times more return on investment than WEC Energy. However, Cheniere Energy is 1.44 times more volatile than WEC Energy Group. It trades about 0.2 of its potential returns per unit of risk. WEC Energy Group is currently generating about 0.01 per unit of risk. If you would invest  4,803  in Cheniere Energy Partners on September 13, 2024 and sell it today you would earn a total of  850.00  from holding Cheniere Energy Partners or generate 17.7% return on investment over 90 days.

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

Cheniere Energy Partners  vs.  WEC Energy Group

Cheniere Energy Partners

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cheniere Energy Partners are ranked lower than 15 (%) 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.

WEC Energy Group

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in WEC Energy Group are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, WEC 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 Cheniere Energy and WEC Energy

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

The idea behind Cheniere Energy Partners and WEC Energy Group 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.