Correlation Between Summit Midstream and NGL Energy

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

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

Diversification Opportunities for Summit Midstream and NGL Energy

0.67

Correlation Coefficient

Summit Midstream  NGL Energy

Poor diversification

The 3 months correlation between Summit and NGL is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Summit Midstream Partners and NGL Energy Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NGL Energy Partners and Summit 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 Summit Midstream Partners are associated (or correlated) with NGL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NGL Energy Partners has no effect on the direction of Summit Midstream i.e., Summit Midstream and NGL Energy go up and down completely randomly.

Pair Corralation between Summit Midstream and NGL Energy

Given the investment horizon of 90 days Summit Midstream Partners is expected to generate 10.65 times more return on investment than NGL Energy. However, Summit Midstream is 10.65 times more volatile than NGL Energy Partners. It trades about 0.15 of its potential returns per unit of risk. NGL Energy Partners is currently generating about 0.13 per unit of risk. If you would invest  2,043  in Summit Midstream Partners on March 13, 2024 and sell it today you would earn a total of  1,223  from holding Summit Midstream Partners or generate 59.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Summit Midstream Partners  vs.  NGL Energy Partners

Summit Midstream Partners

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Summit Midstream Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, Summit Midstream reported solid returns over the last few months and may actually be approaching a breakup point.

NGL Energy Partners

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, NGL Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Summit Midstream and NGL Energy

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

The idea behind Summit Midstream Partners and NGL Energy Partners 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.