Correlation Between Hess Midstream and Imperial Petroleum

Can any of the company-specific risk be diversified away by investing in both Hess Midstream and Imperial Petroleum 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 Imperial Petroleum 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 Imperial Petroleum Preferred, you can compare the effects of market volatilities on Hess Midstream and Imperial Petroleum 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 Imperial Petroleum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hess Midstream and Imperial Petroleum.

Diversification Opportunities for Hess Midstream and Imperial Petroleum

0.46

Correlation Coefficient

Hess Midstream  Imperial Petroleum

Very weak diversification

The 3 months correlation between Hess and Imperial is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Hess Midstream Partners and Imperial Petroleum Preferred in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Petroleum 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 Imperial Petroleum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Petroleum has no effect on the direction of Hess Midstream i.e., Hess Midstream and Imperial Petroleum go up and down completely randomly.

Pair Corralation between Hess Midstream and Imperial Petroleum

Given the investment horizon of 90 days Hess Midstream Partners is expected to generate about the same return on investment as Imperial Petroleum Preferred. However, Hess Midstream is 1.18 times more volatile than Imperial Petroleum Preferred. It trades about 0.09 of its potential returns per unit of risk. Imperial Petroleum Preferred is currently producing about 0.11 per unit of risk. If you would invest  1,931  in Imperial Petroleum Preferred on October 2, 2024 and sell it today you would earn a total of  545.00  from holding Imperial Petroleum Preferred or generate 28.22% return on investment over 90 days.

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

Hess Midstream Partners  vs.  Imperial Petroleum Preferred

Hess Midstream Partners

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Hess Midstream is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Imperial Petroleum

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Petroleum Preferred has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Imperial Petroleum is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Hess Midstream and Imperial Petroleum

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

The idea behind Hess Midstream Partners and Imperial Petroleum Preferred 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.