Correlation Between Hess Midstream and Energy Transfer

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

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

Diversification Opportunities for Hess Midstream and Energy Transfer

0.31

Correlation Coefficient

Hess Midstream  Energy Transfer

Weak diversification

The 3 months correlation between Hess and Energy is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Hess Midstream Partners and Energy Transfer LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Transfer LP and Hess 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 Hess Midstream Partners are associated (or correlated) with Energy Transfer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Transfer LP has no effect on the direction of Hess Midstream i.e., Hess Midstream and Energy Transfer go up and down completely randomly.

Pair Corralation between Hess Midstream and Energy Transfer

Given the investment horizon of 90 days Hess Midstream Partners is expected to generate 2.53 times more return on investment than Energy Transfer. However, Hess Midstream is 2.53 times more volatile than Energy Transfer LP. It trades about 0.15 of its potential returns per unit of risk. Energy Transfer LP is currently generating about -0.02 per unit of risk. If you would invest  3,635  in Hess Midstream Partners on December 2, 2024 and sell it today you would earn a total of  538.00  from holding Hess Midstream Partners or generate 14.8% return on investment over 90 days.

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

Hess Midstream Partners  vs.  Energy Transfer LP

Hess Midstream Partners

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Hess Midstream displayed solid returns over the last few months and may actually be approaching a breakup point.

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. Despite fairly strong basic indicators, Energy Transfer is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Hess Midstream and Energy Transfer

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

The idea behind Hess Midstream Partners and Energy Transfer LP 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.