Correlation Between Hexcel and Targa Resources

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

By analyzing existing cross correlation between Hexcel and Targa Resources Corp, you can compare the effects of market volatilities on Hexcel and Targa Resources 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 Hexcel with a short position of Targa Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hexcel and Targa Resources.

Diversification Opportunities for Hexcel and Targa Resources

0.61

Correlation Coefficient

Hexcel  Targa Resources

Poor diversification

The 3 months correlation between Hexcel and Targa is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Hexcel and Targa Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Targa Resources Corp and Hexcel 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 Hexcel are associated (or correlated) with Targa Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Targa Resources Corp has no effect on the direction of Hexcel i.e., Hexcel and Targa Resources go up and down completely randomly.

Pair Corralation between Hexcel and Targa Resources

Assuming the 90 days horizon Hexcel is expected to generate 5.64 times less return on investment than Targa Resources. In addition to that, Hexcel is 1.09 times more volatile than Targa Resources Corp. It trades about 0.02 of its total potential returns per unit of risk. Targa Resources Corp is currently generating about 0.12 per unit of volatility. If you would invest  6,564  in Targa Resources Corp on September 22, 2024 and sell it today you would earn a total of  10,316  from holding Targa Resources Corp or generate 157.16% return on investment over 90 days.

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

Hexcel  vs.  Targa Resources Corp

Hexcel

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hexcel are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hexcel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Targa Resources Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Targa Resources Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Targa Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hexcel and Targa Resources

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

The idea behind Hexcel and Targa Resources Corp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..