Correlation Between Dynagas LNG and Western Midstream

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

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

Diversification Opportunities for Dynagas LNG and Western Midstream

0.59

Correlation Coefficient

Dynagas LNG  Western Midstream

Very weak diversification

The 3 months correlation between Dynagas and Western is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Dynagas LNG Partners and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream and Dynagas LNG 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 Dynagas LNG Partners are associated (or correlated) with Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of Dynagas LNG i.e., Dynagas LNG and Western Midstream go up and down completely randomly.

Pair Corralation between Dynagas LNG and Western Midstream

Given the investment horizon of 90 days Dynagas LNG Partners is expected to generate 1.72 times more return on investment than Western Midstream. However, Dynagas LNG is 1.72 times more volatile than Western Midstream Partners. It trades about 0.16 of its potential returns per unit of risk. Western Midstream Partners is currently generating about 0.03 per unit of risk. If you would invest  363.00  in Dynagas LNG Partners on September 15, 2024 and sell it today you would earn a total of  94.00  from holding Dynagas LNG Partners or generate 25.9% return on investment over 90 days.

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

Dynagas LNG Partners  vs.  Western Midstream Partners

Dynagas LNG Partners

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dynagas LNG Partners are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Dynagas LNG reported solid returns over the last few months and may actually be approaching a breakup point.

Western Midstream

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 2 (%) 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Dynagas LNG and Western Midstream

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

The idea behind Dynagas LNG Partners and Western Midstream 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.