Correlation Between Western Midstream and Frontline

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

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

Diversification Opportunities for Western Midstream and Frontline

0.28

Correlation Coefficient

Western Midstream  Frontline

Modest diversification

The 3 months correlation between Western and Frontline is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline and Western Midstream 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 Western Midstream Partners are associated (or correlated) with Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Western Midstream i.e., Western Midstream and Frontline go up and down completely randomly.

Pair Corralation between Western Midstream and Frontline

Considering the 90-day investment horizon Western Midstream Partners is expected to generate 0.47 times more return on investment than Frontline. However, Western Midstream Partners is 2.12 times less risky than Frontline. It trades about 0.07 of its potential returns per unit of risk. Frontline is currently generating about -0.17 per unit of risk. 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

Western Midstream Partners  vs.  Frontline

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.

Frontline

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Frontline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Western Midstream and Frontline

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

The idea behind Western Midstream Partners and Frontline 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.