Correlation Between NGL Energy and Hess Midstream

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

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

Diversification Opportunities for NGL Energy and Hess Midstream

0.71

Correlation Coefficient

NGL Energy  Hess Midstream

Poor diversification

The 3 months correlation between NGL and Hess is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and Hess Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hess Midstream Partners and NGL Energy 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 NGL Energy Partners are associated (or correlated) with Hess Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hess Midstream Partners has no effect on the direction of NGL Energy i.e., NGL Energy and Hess Midstream go up and down completely randomly.

Pair Corralation between NGL Energy and Hess Midstream

Assuming the 90 days trading horizon NGL Energy is expected to generate 4.09 times less return on investment than Hess Midstream. But when comparing it to its historical volatility, NGL Energy Partners is 2.29 times less risky than Hess Midstream. It trades about 0.11 of its potential returns per unit of risk. Hess Midstream Partners is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  3,593  in Hess Midstream Partners on December 27, 2024 and sell it today you would earn a total of  683.00  from holding Hess Midstream Partners or generate 19.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

NGL Energy Partners  vs.  Hess Midstream Partners

NGL Energy Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, NGL Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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 15 (%) 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.

Pair Trading with NGL Energy and Hess Midstream

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

The idea behind NGL Energy Partners and Hess Midstream Partners 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.