Correlation Between Dynagas LNG and NuStar Energy

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

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

Diversification Opportunities for Dynagas LNG and NuStar Energy

-0.38

Correlation Coefficient

Dynagas LNG  NuStar Energy

Very good diversification

The 3 months correlation between Dynagas and NuStar is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Dynagas LNG Partners and NuStar Energy LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NuStar Energy LP and Dynagas LNG 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 Dynagas LNG Partners are associated (or correlated) with NuStar Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NuStar Energy LP has no effect on the direction of Dynagas LNG i.e., Dynagas LNG and NuStar Energy go up and down completely randomly.

Pair Corralation between Dynagas LNG and NuStar Energy

Assuming the 90 days trading horizon Dynagas LNG Partners is expected to generate 1.37 times more return on investment than NuStar Energy. However, Dynagas LNG is 1.37 times more volatile than NuStar Energy LP. It trades about 0.15 of its potential returns per unit of risk. NuStar Energy LP is currently generating about -0.08 per unit of risk. If you would invest  2,477  in Dynagas LNG Partners on March 13, 2024 and sell it today you would earn a total of  122.00  from holding Dynagas LNG Partners or generate 4.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

Dynagas LNG Partners  vs.  NuStar Energy LP

Dynagas LNG Partners

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dynagas LNG Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Dynagas LNG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

NuStar Energy LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NuStar Energy LP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, NuStar Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Dynagas LNG and NuStar Energy

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

The idea behind Dynagas LNG Partners and NuStar Energy 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.