Correlation Between Energy Transfer and Plains GP

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

Diversification Opportunities for Energy Transfer and Plains GP

0.79

Correlation Coefficient

Energy Transfer  Plains GP

Poor diversification

The 3 months correlation between Energy and Plains is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Energy Transfer LP and Plains GP Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plains GP Holdings 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 Plains GP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plains GP Holdings has no effect on the direction of Energy Transfer i.e., Energy Transfer and Plains GP go up and down completely randomly.

Pair Corralation between Energy Transfer and Plains GP

Allowing for the 90-day total investment horizon Energy Transfer LP is expected to under-perform the Plains GP. In addition to that, Energy Transfer is 1.05 times more volatile than Plains GP Holdings. It trades about -0.02 of its total potential returns per unit of risk. Plains GP Holdings is currently generating about 0.08 per unit of volatility. If you would invest  1,968  in Plains GP Holdings on November 29, 2024 and sell it today you would earn a total of  150.00  from holding Plains GP Holdings or generate 7.62% 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.  Plains GP Holdings

Energy Transfer LP

Risk-Adjusted Performance

Very Weak

Over the last 90 days Energy Transfer LP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Energy Transfer is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Plains GP Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plains GP Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Plains GP may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Energy Transfer and Plains GP

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

The idea behind Energy Transfer LP and Plains GP Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.