Correlation Between NGL Energy and Kinetik Holdings

Can any of the company-specific risk be diversified away by investing in both NGL Energy and Kinetik Holdings 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 Kinetik Holdings 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 Kinetik Holdings, you can compare the effects of market volatilities on NGL Energy and Kinetik Holdings 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 Kinetik Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of NGL Energy and Kinetik Holdings.

Diversification Opportunities for NGL Energy and Kinetik Holdings

0.61

Correlation Coefficient

NGL Energy  Kinetik Holdings

Poor diversification

The 3 months correlation between NGL and Kinetik is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and Kinetik Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kinetik Holdings 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 Kinetik Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kinetik Holdings has no effect on the direction of NGL Energy i.e., NGL Energy and Kinetik Holdings go up and down completely randomly.

Pair Corralation between NGL Energy and Kinetik Holdings

Assuming the 90 days trading horizon NGL Energy Partners is expected to generate 0.25 times more return on investment than Kinetik Holdings. However, NGL Energy Partners is 3.92 times less risky than Kinetik Holdings. It trades about 0.07 of its potential returns per unit of risk. Kinetik Holdings is currently generating about -0.09 per unit of risk. If you would invest  2,372  in NGL Energy Partners on September 29, 2024 and sell it today you would earn a total of  17.00  from holding NGL Energy Partners or generate 0.72% 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.  Kinetik Holdings

NGL Energy Partners

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 6 (%) 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.

Kinetik Holdings

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Kinetik Holdings are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Kinetik Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NGL Energy and Kinetik Holdings

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

The idea behind NGL Energy Partners and Kinetik Holdings 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.