Correlation Between NGL Energy and Plains GP

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

Diversification Opportunities for NGL Energy and Plains GP

0.09

Correlation Coefficient

NGL Energy  Plains GP

Significant diversification

The 3 months correlation between NGL and Plains is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy 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 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 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 NGL Energy i.e., NGL Energy and Plains GP go up and down completely randomly.

Pair Corralation between NGL Energy and Plains GP

Considering the 90-day investment horizon NGL Energy is expected to generate 9.8 times less return on investment than Plains GP. In addition to that, NGL Energy is 2.5 times more volatile than Plains GP Holdings. It trades about 0.01 of its total potential returns per unit of risk. Plains GP Holdings is currently generating about 0.23 per unit of volatility. If you would invest  1,782  in Plains GP Holdings on December 27, 2024 and sell it today you would earn a total of  386.00  from holding Plains GP Holdings or generate 21.66% return on investment over 90 days.

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

NGL Energy Partners  vs.  Plains GP Holdings

NGL Energy Partners

Risk-Adjusted Performance

Very Weak

Over the last 90 days NGL Energy Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, NGL Energy is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Plains GP Holdings

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Plains GP Holdings are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Plains GP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NGL Energy and Plains GP

The main advantage of trading using opposite NGL Energy and Plains GP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NGL Energy 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 NGL Energy 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.