Correlation Between Kinder Morgan and Energy Transfer

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

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

Diversification Opportunities for Kinder Morgan and Energy Transfer

0.88

Correlation Coefficient

Kinder Morgan  Energy Transfer

Very poor diversification

The 3 months correlation between Kinder and Energy is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Kinder Morgan and Energy Transfer LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Transfer LP and Kinder Morgan 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 Kinder Morgan are associated (or correlated) with Energy Transfer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Transfer LP has no effect on the direction of Kinder Morgan i.e., Kinder Morgan and Energy Transfer go up and down completely randomly.

Pair Corralation between Kinder Morgan and Energy Transfer

Considering the 90-day investment horizon Kinder Morgan is expected to generate 1.43 times more return on investment than Energy Transfer. However, Kinder Morgan is 1.43 times more volatile than Energy Transfer LP. It trades about 0.33 of its potential returns per unit of risk. Energy Transfer LP is currently generating about 0.36 per unit of risk. If you would invest  2,131  in Kinder Morgan on August 31, 2024 and sell it today you would earn a total of  676.00  from holding Kinder Morgan or generate 31.72% return on investment over 90 days.

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

Kinder Morgan  vs.  Energy Transfer LP

Kinder Morgan

Risk-Adjusted Performance

25 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinder Morgan are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady primary indicators, Kinder Morgan demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Energy Transfer LP

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Transfer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Kinder Morgan and Energy Transfer

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

The idea behind Kinder Morgan and Energy Transfer LP 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.