Correlation Between Western Midstream and JD Sports

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

Diversification Opportunities for Western Midstream and JD Sports

-0.22

Correlation Coefficient

Western Midstream  JD Sports

Very good diversification

The 3 months correlation between Western and JDSPY is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Western Midstream Partners and JD Sports Fashion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD Sports Fashion 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 JD Sports. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD Sports Fashion has no effect on the direction of Western Midstream i.e., Western Midstream and JD Sports go up and down completely randomly.

Pair Corralation between Western Midstream and JD Sports

Considering the 90-day investment horizon Western Midstream Partners is expected to generate 0.33 times more return on investment than JD Sports. However, Western Midstream Partners is 2.99 times less risky than JD Sports. It trades about 0.1 of its potential returns per unit of risk. JD Sports Fashion is currently generating about -0.09 per unit of risk. If you would invest  3,695  in Western Midstream Partners on September 5, 2024 and sell it today you would earn a total of  307.00  from holding Western Midstream Partners or generate 8.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Western Midstream Partners  vs.  JD Sports Fashion

Western Midstream

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Midstream Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady technical and fundamental indicators, Western Midstream may actually be approaching a critical reversion point that can send shares even higher in January 2025.

JD Sports Fashion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JD Sports Fashion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Western Midstream and JD Sports

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

The idea behind Western Midstream Partners and JD Sports Fashion 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.