Correlation Between NGL Energy and Enterprise Products

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

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

Diversification Opportunities for NGL Energy and Enterprise Products

0.78

Correlation Coefficient

NGL Energy  Enterprise Products

Poor diversification

The 3 months correlation between NGL and Enterprise is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and Enterprise Products Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Products and NGL 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 NGL Energy Partners are associated (or correlated) with Enterprise Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Products has no effect on the direction of NGL Energy i.e., NGL Energy and Enterprise Products go up and down completely randomly.

Pair Corralation between NGL Energy and Enterprise Products

Assuming the 90 days trading horizon NGL Energy is expected to generate 2.77 times less return on investment than Enterprise Products. But when comparing it to its historical volatility, NGL Energy Partners is 1.61 times less risky than Enterprise Products. It trades about 0.07 of its potential returns per unit of risk. Enterprise Products Partners is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  2,873  in Enterprise Products Partners on September 25, 2024 and sell it today you would earn a total of  226.00  from holding Enterprise Products Partners or generate 7.87% return on investment over 90 days.

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

NGL Energy Partners  vs.  Enterprise Products Partners

NGL Energy Partners

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 5 (%) 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.

Enterprise Products

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Products Partners are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Enterprise Products may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NGL Energy and Enterprise Products

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

The idea behind NGL Energy Partners and Enterprise Products 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.