Correlation Between Plains All and Western Midstream

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

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

Diversification Opportunities for Plains All and Western Midstream

0.36

Correlation Coefficient

Plains All  Western Midstream

Weak diversification

The 3 months correlation between Plains and Western is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream and Plains All 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 Plains All American 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 Plains All i.e., Plains All and Western Midstream go up and down completely randomly.

Pair Corralation between Plains All and Western Midstream

Considering the 90-day investment horizon Plains All is expected to generate 1.72 times less return on investment than Western Midstream. But when comparing it to its historical volatility, Plains All American is 1.08 times less risky than Western Midstream. It trades about 0.04 of its potential returns per unit of risk. Western Midstream Partners is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,769  in Western Midstream Partners on August 30, 2024 and sell it today you would earn a total of  194.00  from holding Western Midstream Partners or generate 5.15% return on investment over 90 days.

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

Plains All American  vs.  Western Midstream Partners

Plains All American

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Plains All American are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Plains All is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Western Midstream

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 5 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Plains All and Western Midstream

The main advantage of trading using opposite Plains All and Western Midstream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plains All 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 Plains All American 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.