Correlation Between DCP Midstream and EnLink Midstream

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

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

Diversification Opportunities for DCP Midstream and EnLink Midstream

0.82

Correlation Coefficient

DCP Midstream  EnLink Midstream

Very poor diversification

The 3 months correlation between DCP and EnLink is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding DCP Midstream LP and EnLink Midstream LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EnLink Midstream LLC and DCP 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 DCP Midstream LP are associated (or correlated) with EnLink Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EnLink Midstream LLC has no effect on the direction of DCP Midstream i.e., DCP Midstream and EnLink Midstream go up and down completely randomly.

Pair Corralation between DCP Midstream and EnLink Midstream

Considering the 90-day investment horizon DCP Midstream is expected to generate 4.18 times less return on investment than EnLink Midstream. But when comparing it to its historical volatility, DCP Midstream LP is 23.76 times less risky than EnLink Midstream. It trades about 0.49 of its potential returns per unit of risk. EnLink Midstream LLC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,003  in EnLink Midstream LLC on August 31, 2024 and sell it today you would earn a total of  598.00  from holding EnLink Midstream LLC or generate 59.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	2.14%
Values	Daily Returns

DCP Midstream LP  vs.  EnLink Midstream LLC

DCP Midstream LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DCP Midstream LP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, DCP Midstream is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

EnLink Midstream LLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EnLink Midstream LLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak essential indicators, EnLink Midstream may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with DCP Midstream and EnLink Midstream

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

The idea behind DCP Midstream LP and EnLink Midstream LLC 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.