Correlation Between NGL Energy and ONEOK

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

Diversification Opportunities for NGL Energy and ONEOK

0.5

Correlation Coefficient

NGL Energy  ONEOK

Very weak diversification

The 3 months correlation between NGL and ONEOK is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and ONEOK Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ONEOK Inc 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 ONEOK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ONEOK Inc has no effect on the direction of NGL Energy i.e., NGL Energy and ONEOK go up and down completely randomly.

Pair Corralation between NGL Energy and ONEOK

Assuming the 90 days trading horizon NGL Energy is expected to generate 2.99 times less return on investment than ONEOK. But when comparing it to its historical volatility, NGL Energy Partners is 2.88 times less risky than ONEOK. It trades about 0.07 of its potential returns per unit of risk. ONEOK Inc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  9,372  in ONEOK Inc on September 25, 2024 and sell it today you would earn a total of  725.00  from holding ONEOK Inc or generate 7.74% return on investment over 90 days.

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

NGL Energy Partners  vs.  ONEOK Inc

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.

ONEOK Inc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ONEOK Inc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward-looking signals, ONEOK may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NGL Energy and ONEOK

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

The idea behind NGL Energy Partners and ONEOK Inc 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.