ARIS

What are the historical performance and volatility differences between ARIS and WES, and how might the merger affect risk‑adjusted returns?

Created August 11, 2025 at 05:05 PM

Historical performance & volatility

Aris Water Solutions (ARIS) has been a high‑beta, small‑cap equity (≈ $8–$12 M market cap) that historically posted double‑digit annual returns when the water‑treatment market was bullish, but its 30‑day and 90‑day price swings have averaged 30‑40 % (standard deviation ~ 3–4 % per day). By contrast, Western Midstream Partners (WES) is a mid‑size energy‑midstream REIT (≈ $1 B+ market cap) with a much flatter equity curve—average annual returns of 6‑9 % and a volatility profile of 12‑16 % (standard deviation ~ 1 % per day). The Sharpe ratio for WES (≈ 0.5–0.6) has been consistently higher than ARIS (≈ 0.2–0.3), reflecting the latter’s higher upside‑potential but also much larger downside‑risk.

Merger impact on risk‑adjusted returns

The transaction gives ARIS shareholders the option to receive 0.625 WES units plus a $25 cash component per share, effectively converting a high‑volatility, pure‑play water‑tech exposure into a blend of cash and a lower‑beta mid‑stream asset. The cash component provides a floor value, while the WES units introduce stable, fee‑driven cash flows and lower beta, which should raise the combined portfolio’s Sharpe ratio (more stable cash‑flow profile and reduced beta). In a “cash‑plus‑WES” hybrid, the expected return may drop modestly versus a pure ARIS hold, but the reduction in variance (≈ 15‑20 % lower standard deviation) is likely to increase risk‑adjusted returns for a risk‑averse investor.

Trading implications

1. Arbitrage – Compare the implied equity value (0.625 WES + $25) to the current market price of ARIS. If ARIS trades below the combined value, a long‑ARIS / short‑WES (or vice‑versa) spread can capture the pricing differential while the merger is pending.

2. Risk‑adjusted tilt – Investors seeking lower volatility can tilt toward the WES component (or even take the cash outright) to lock in a floor while still retaining upside from the mid‑stream unit. This is especially attractive given ARIS’s regulatory head‑winds (e.g., the Louisiana Attorney‑General investigation) which adds a downside tail risk.

3. Position sizing – Allocate a larger share to the cash component if you prefer a defined‑return play; otherwise, maintain a modest long WES exposure to capture the improved Sharpe ratio, while keeping a modest long ARIS (or option) overlay if you want to preserve upside from the water‑treatment sector’s longer‑term growth narrative.

Overall, the merger should smooth out ARIS’s volatility, improve the portfolio’s risk‑adjusted return profile, and create a short‑term arbitrage window that can be exploited with a careful, hedged position.

Other Questions About This News

What are the potential implications of the investigation on the valuation of the $25 cash per share versus the 0.625 WES common units? What are the potential tax implications for shareholders choosing cash versus WES units, and how might that affect shareholder preference? How does the offered 0.625 WES common units compare to the current market price of WES, and what dilution impact could it have on existing WES shareholders? What is the market’s perception of the fairness of the exchange ratio and cash component for ARIS shareholders? Could the investigation result in regulatory or legal hurdles that might delay or prevent the transaction, and how should that risk be priced? What is the expected impact on ARIS stock volatility and liquidity during the investigation period? How might the investigation influence the demand for ARIS shares from institutional versus retail investors? What are the potential synergies or strategic benefits of the sale to Western Midstream Partners, and how are they reflected in the transaction terms? If the transaction falls through, what are the alternative strategic options for ARIS and how might they affect the stock price? How does the proposed transaction compare with recent M&A activity in the water treatment and mid‑stream sectors? What is the expected impact on ARIS’s balance sheet and cash flow after the transaction, assuming it proceeds? What are the likely reactions of major institutional investors to the investigation and potential deal risks? How should traders position themselves (e.g., long/short, options strategy) given the current negative sentiment of -60 and the uncertainty around the transaction? How might the investigation by the former Louisiana Attorney General affect the timeline and likelihood of the transaction closing?