Correlation Between Energy Transfer and Frontline

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

Diversification Opportunities for Energy Transfer and Frontline

0.7

Correlation Coefficient

Energy Transfer  Frontline

Poor diversification

The 3 months correlation between Energy and Frontline is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Energy Transfer LP and Frontline in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Frontline 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 Frontline. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Frontline has no effect on the direction of Energy Transfer i.e., Energy Transfer and Frontline go up and down completely randomly.

Pair Corralation between Energy Transfer and Frontline

Allowing for the 90-day total investment horizon Energy Transfer is expected to generate 35.95 times less return on investment than Frontline. But when comparing it to its historical volatility, Energy Transfer LP is 2.32 times less risky than Frontline. It trades about 0.01 of its potential returns per unit of risk. Frontline is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2,362  in Frontline on February 2, 2024 and sell it today you would earn a total of  95.00  from holding Frontline or generate 4.02% return on investment over 90 days.

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

Energy Transfer LP  vs.  Frontline

Energy Transfer LP

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 15 (%) 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 June 2024.

Frontline

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Frontline are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Frontline displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy Transfer and Frontline

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

The idea behind Energy Transfer LP and Frontline 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.