Correlation Between Summit Midstream and KNOT Offshore

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

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

Diversification Opportunities for Summit Midstream and KNOT Offshore

-0.7

Correlation Coefficient

Summit Midstream  KNOT Offshore

Excellent diversification

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

Pair Corralation between Summit Midstream and KNOT Offshore

Considering the 90-day investment horizon Summit Midstream is expected to under-perform the KNOT Offshore. In addition to that, Summit Midstream is 1.15 times more volatile than KNOT Offshore Partners. It trades about -0.06 of its total potential returns per unit of risk. KNOT Offshore Partners is currently generating about 0.03 per unit of volatility. If you would invest  603.00  in KNOT Offshore Partners on February 5, 2025 and sell it today you would earn a total of  35.00  from holding KNOT Offshore Partners or generate 5.8% return on investment over 90 days.

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

Summit Midstream  vs.  KNOT Offshore Partners

Summit Midstream

Risk-Adjusted Performance

Very Weak

Over the last 90 days Summit Midstream has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's primary indicators remain rather sound which may send shares a bit higher in June 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

KNOT Offshore Partners

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KNOT Offshore Partners are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, KNOT Offshore reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Summit Midstream and KNOT Offshore

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

The idea behind Summit Midstream and KNOT Offshore Partners 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.