Correlation Between Plains All and Plains GP

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

By analyzing existing cross correlation between Plains All American and Plains GP Holdings, you can compare the effects of market volatilities on Plains All 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 Plains All with a short position of Plains GP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains All and Plains GP.

Diversification Opportunities for Plains All and Plains GP

0.98

Correlation Coefficient

Plains All  Plains GP

Almost no diversification

The 3 months correlation between Plains and Plains is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Plains All American 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 Plains All 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 Plains All American 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 Plains All i.e., Plains All and Plains GP go up and down completely randomly.

Pair Corralation between Plains All and Plains GP

Considering the 90-day investment horizon Plains All American is expected to generate 1.02 times more return on investment than Plains GP. However, Plains All is 1.02 times more volatile than Plains GP Holdings. It trades about 0.1 of its potential returns per unit of risk. Plains GP Holdings is currently generating about 0.1 per unit of risk. If you would invest  1,729  in Plains All American on August 31, 2024 and sell it today you would earn a total of  138.00  from holding Plains All American or generate 7.98% return on investment over 90 days.

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

Plains All American  vs.  Plains GP Holdings

Plains All American

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Plains All American are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Plains All may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Plains GP Holdings

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Plains GP Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal technical and fundamental indicators, Plains GP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Plains All and Plains GP

The main advantage of trading using opposite Plains All and Plains GP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plains All 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 Plains All American 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.

Check out your portfolio center.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.