Correlation Between Western Midstream and Plains All

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

Diversification Opportunities for Western Midstream and Plains All

0.36

Correlation Coefficient

Western Midstream  Plains All

Weak diversification

The 3 months correlation between Western and Plains is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and Plains All American in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plains All American 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 Plains All. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plains All American has no effect on the direction of Western Midstream i.e., Western Midstream and Plains All go up and down completely randomly.

Pair Corralation between Western Midstream and Plains All

Considering the 90-day investment horizon Western Midstream Partners is expected to generate 1.08 times more return on investment than Plains All. However, Western Midstream is 1.08 times more volatile than Plains All American. It trades about 0.07 of its potential returns per unit of risk. Plains All American is currently generating about 0.04 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.  Plains All American

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.

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.

Pair Trading with Western Midstream and Plains All

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

The idea behind Western Midstream Partners and Plains All American 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.