Correlation Between Hess Midstream and Plains GP

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

Diversification Opportunities for Hess Midstream and Plains GP

0.85

Correlation Coefficient

Hess Midstream  Plains GP

Very poor diversification

The 3 months correlation between Hess and Plains is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Hess Midstream Partners 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 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 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 Hess Midstream i.e., Hess Midstream and Plains GP go up and down completely randomly.

Pair Corralation between Hess Midstream and Plains GP

Given the investment horizon of 90 days Hess Midstream is expected to generate 1.38 times less return on investment than Plains GP. But when comparing it to its historical volatility, Hess Midstream Partners is 1.15 times less risky than Plains GP. It trades about 0.08 of its potential returns per unit of risk. Plains GP Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,854  in Plains GP Holdings on September 2, 2024 and sell it today you would earn a total of  148.00  from holding Plains GP Holdings or generate 7.98% return on investment over 90 days.

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

Hess Midstream Partners  vs.  Plains GP Holdings

Hess Midstream Partners

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 6 (%) 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.

Plains GP Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plains GP Holdings are ranked lower than 7 (%) 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 January 2025.

Pair Trading with Hess Midstream and Plains GP

The main advantage of trading using opposite Hess Midstream and Plains GP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hess Midstream 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 Hess Midstream Partners 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .