Correlation Between Plains All and Williams Companies

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

Diversification Opportunities for Plains All and Williams Companies

0.43

Correlation Coefficient

Plains All  Williams Companies

Very weak diversification

The 3 months correlation between Plains and Williams is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American and Williams Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Williams Companies 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 Williams Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Williams Companies has no effect on the direction of Plains All i.e., Plains All and Williams Companies go up and down completely randomly.

Pair Corralation between Plains All and Williams Companies

Considering the 90-day investment horizon Plains All American is expected to under-perform the Williams Companies. But the stock apears to be less risky and, when comparing its historical volatility, Plains All American is 1.09 times less risky than Williams Companies. The stock trades about -0.01 of its potential returns per unit of risk. The Williams Companies is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,526  in Williams Companies on September 28, 2024 and sell it today you would earn a total of  854.50  from holding Williams Companies or generate 18.88% return on investment over 90 days.

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

Plains All American  vs.  Williams Companies

Plains All American

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Plains All American has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Williams Companies

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Companies are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Williams Companies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plains All and Williams Companies

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

The idea behind Plains All American and Williams Companies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.