Correlation Between Williams Companies and Energy Transfer

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

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

Diversification Opportunities for Williams Companies and Energy Transfer

0.77

Correlation Coefficient

Williams Companies  Energy Transfer

Poor diversification

The 3 months correlation between Williams and Energy is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Williams Companies 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 Williams Companies 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 Williams Companies 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 Williams Companies i.e., Williams Companies and Energy Transfer go up and down completely randomly.

Pair Corralation between Williams Companies and Energy Transfer

Considering the 90-day investment horizon Williams Companies is expected to generate 1.55 times more return on investment than Energy Transfer. However, Williams Companies is 1.55 times more volatile than Energy Transfer LP. It trades about 0.31 of its potential returns per unit of risk. Energy Transfer LP is currently generating about 0.05 per unit of risk. If you would invest  4,529  in Williams Companies on August 30, 2024 and sell it today you would earn a total of  1,285  from holding Williams Companies or generate 28.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Williams Companies  vs.  Energy Transfer LP

Williams Companies

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Companies are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady primary indicators, Williams Companies sustained solid returns over the last few months and may actually be approaching a breakup point.

Energy Transfer LP

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Energy Transfer is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Williams Companies and Energy Transfer

The main advantage of trading using opposite Williams Companies and Energy Transfer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Williams Companies 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 Williams Companies 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.