Correlation Between DCP Midstream and Energy Transfer

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

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

Diversification Opportunities for DCP Midstream and Energy Transfer

0.84

Correlation Coefficient

DCP Midstream  Energy Transfer

Very poor diversification

The 3 months correlation between DCP and Energy is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding DCP Midstream LP 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 DCP 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 DCP Midstream LP 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 DCP Midstream i.e., DCP Midstream and Energy Transfer go up and down completely randomly.

Pair Corralation between DCP Midstream and Energy Transfer

If you would invest  4,169  in DCP Midstream LP on January 20, 2024 and sell it today you would earn a total of  0.00  from holding DCP Midstream LP or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	4.55%
Values	Daily Returns

DCP Midstream LP  vs.  Energy Transfer LP

DCP Midstream LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DCP Midstream LP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, DCP Midstream is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Energy Transfer LP

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Transfer unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with DCP Midstream and Energy Transfer

The main advantage of trading using opposite DCP Midstream and Energy Transfer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DCP Midstream 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 DCP Midstream LP 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.