Correlation Between El Paso and ONEOK

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

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

Diversification Opportunities for El Paso and ONEOK

0.9

Correlation Coefficient

El Paso  ONEOK

Almost no diversification

The 3 months correlation between EP-PC and ONEOK is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding El Paso Energy and ONEOK Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ONEOK Inc and El Paso 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 El Paso Energy are associated (or correlated) with ONEOK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ONEOK Inc has no effect on the direction of El Paso i.e., El Paso and ONEOK go up and down completely randomly.

Pair Corralation between El Paso and ONEOK

Assuming the 90 days horizon El Paso is expected to generate 4.02 times less return on investment than ONEOK. But when comparing it to its historical volatility, El Paso Energy is 3.96 times less risky than ONEOK. It trades about 0.15 of its potential returns per unit of risk. ONEOK Inc is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  8,245  in ONEOK Inc on July 18, 2024 and sell it today you would earn a total of  1,253  from holding ONEOK Inc or generate 15.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

El Paso Energy  vs.  ONEOK Inc

El Paso Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in El Paso Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, El Paso is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

ONEOK Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ONEOK Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, ONEOK exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with El Paso and ONEOK

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

The idea behind El Paso Energy and ONEOK Inc 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.