Correlation Between Plains GP and DCP Midstream

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

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

Diversification Opportunities for Plains GP and DCP Midstream

0.11

Correlation Coefficient

Plains GP  DCP Midstream

Average diversification

The 3 months correlation between Plains and DCP is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Plains GP Holdings and DCP Midstream LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DCP Midstream LP and Plains GP 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 GP Holdings are associated (or correlated) with DCP Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DCP Midstream LP has no effect on the direction of Plains GP i.e., Plains GP and DCP Midstream go up and down completely randomly.

Pair Corralation between Plains GP and DCP Midstream

Given the investment horizon of 90 days Plains GP Holdings is expected to generate 1.91 times more return on investment than DCP Midstream. However, Plains GP is 1.91 times more volatile than DCP Midstream LP. It trades about 0.1 of its potential returns per unit of risk. DCP Midstream LP is currently generating about 0.11 per unit of risk. If you would invest  1,059  in Plains GP Holdings on September 2, 2024 and sell it today you would earn a total of  943.00  from holding Plains GP Holdings or generate 89.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	26.21%
Values	Daily Returns

Plains GP Holdings  vs.  DCP Midstream LP

Plains GP Holdings

Risk-Adjusted Performance

7 of 100

OK

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 weak technical and fundamental indicators, Plains GP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

DCP Midstream LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days DCP Midstream LP has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental indicators, DCP Midstream is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Plains GP and DCP Midstream

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

The idea behind Plains GP Holdings and DCP Midstream 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.