Correlation Between Northern Trust and Targa Resources

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

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

Diversification Opportunities for Northern Trust and Targa Resources

0.92

Correlation Coefficient

Northern Trust  Targa Resources

Almost no diversification

The 3 months correlation between Northern and Targa is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Northern Trust 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 Northern Trust 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 Northern Trust 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 Northern Trust i.e., Northern Trust and Targa Resources go up and down completely randomly.

Pair Corralation between Northern Trust and Targa Resources

Assuming the 90 days horizon Northern Trust is expected to generate 0.8 times more return on investment than Targa Resources. However, Northern Trust is 1.25 times less risky than Targa Resources. It trades about -0.14 of its potential returns per unit of risk. Targa Resources Corp is currently generating about -0.36 per unit of risk. If you would invest  10,126  in Northern Trust on September 22, 2024 and sell it today you would lose (476.00) from holding Northern Trust or give up 4.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

Northern Trust  vs.  Targa Resources Corp

Northern Trust

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Trust are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Northern Trust reported solid returns over the last few months and may actually be approaching a breakup point.

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 Northern Trust and Targa Resources

The main advantage of trading using opposite Northern Trust and Targa Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Northern Trust 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 Northern Trust 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.