Correlation Between Energy Transfer and Equinor ASA

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

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

Diversification Opportunities for Energy Transfer and Equinor ASA

0.12

Correlation Coefficient

Energy Transfer  Equinor ASA

Average diversification

The 3 months correlation between Energy and Equinor is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Energy Transfer LP and Equinor ASA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equinor ASA ADR and Energy Transfer 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 Energy Transfer LP are associated (or correlated) with Equinor ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equinor ASA ADR has no effect on the direction of Energy Transfer i.e., Energy Transfer and Equinor ASA go up and down completely randomly.

Pair Corralation between Energy Transfer and Equinor ASA

Allowing for the 90-day total investment horizon Energy Transfer LP is expected to generate 0.93 times more return on investment than Equinor ASA. However, Energy Transfer LP is 1.07 times less risky than Equinor ASA. It trades about 0.09 of its potential returns per unit of risk. Equinor ASA ADR is currently generating about 0.08 per unit of risk. If you would invest  1,569  in Energy Transfer LP on January 29, 2024 and sell it today you would earn a total of  27.00  from holding Energy Transfer LP or generate 1.72% return on investment over 90 days.

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

Energy Transfer LP  vs.  Equinor ASA ADR

Energy Transfer LP

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Energy Transfer may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Equinor ASA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Energy Transfer and Equinor ASA

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

The idea behind Energy Transfer LP and Equinor ASA ADR 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 Stocks Directory module to find actively traded stocks across global markets.