Correlation Between TC Energy and Energy Transfer

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

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

Diversification Opportunities for TC Energy and Energy Transfer

0.51

Correlation Coefficient

TC Energy  Energy Transfer

Very weak diversification

The 3 months correlation between TRP and Energy is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding TC Energy Corp and Energy Transfer LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Transfer LP and TC 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 TC Energy Corp are associated (or correlated) with Energy Transfer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Transfer LP has no effect on the direction of TC Energy i.e., TC Energy and Energy Transfer go up and down completely randomly.

Pair Corralation between TC Energy and Energy Transfer

Considering the 90-day investment horizon TC Energy Corp is expected to under-perform the Energy Transfer. But the stock apears to be less risky and, when comparing its historical volatility, TC Energy Corp is 1.88 times less risky than Energy Transfer. The stock trades about -0.24 of its potential returns per unit of risk. The Energy Transfer LP is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,942  in Energy Transfer LP on September 28, 2024 and sell it today you would lose (14.00) from holding Energy Transfer LP or give up 0.72% of portfolio value over 90 days.

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

TC Energy Corp  vs.  Energy Transfer LP

TC Energy Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TC Energy Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, TC Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Energy Transfer LP

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Transfer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TC Energy and Energy Transfer

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

The idea behind TC Energy Corp and Energy Transfer LP 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 Global Correlations module to find global opportunities by holding instruments from different markets.