Correlation Between NGL Energy and MPLX LP

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

Diversification Opportunities for NGL Energy and MPLX LP

0.69

Correlation Coefficient

NGL Energy  MPLX LP

Poor diversification

The 3 months correlation between NGL and MPLX is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and MPLX LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPLX LP 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 MPLX LP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPLX LP has no effect on the direction of NGL Energy i.e., NGL Energy and MPLX LP go up and down completely randomly.

Pair Corralation between NGL Energy and MPLX LP

Assuming the 90 days trading horizon NGL Energy Partners is expected to generate 0.45 times more return on investment than MPLX LP. However, NGL Energy Partners is 2.22 times less risky than MPLX LP. It trades about 0.22 of its potential returns per unit of risk. MPLX LP is currently generating about -0.04 per unit of risk. If you would invest  2,306  in NGL Energy Partners on October 14, 2024 and sell it today you would earn a total of  57.00  from holding NGL Energy Partners or generate 2.47% return on investment over 90 days.

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

NGL Energy Partners  vs.  MPLX LP

NGL Energy Partners

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, NGL Energy is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

MPLX LP

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MPLX LP are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, MPLX LP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with NGL Energy and MPLX LP

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

The idea behind NGL Energy Partners and MPLX 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.