Correlation Between Plains GP and Hess Midstream

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

Diversification Opportunities for Plains GP and Hess Midstream

0.94

Correlation Coefficient

Plains GP  Hess Midstream

Almost no diversification

The 3 months correlation between Plains and Hess is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Plains GP Holdings and Hess Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hess Midstream Partners 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 Hess Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hess Midstream Partners has no effect on the direction of Plains GP i.e., Plains GP and Hess Midstream go up and down completely randomly.

Pair Corralation between Plains GP and Hess Midstream

Given the investment horizon of 90 days Plains GP is expected to generate 1.32 times less return on investment than Hess Midstream. But when comparing it to its historical volatility, Plains GP Holdings is 1.03 times less risky than Hess Midstream. It trades about 0.08 of its potential returns per unit of risk. Hess Midstream Partners is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,727  in Hess Midstream Partners on November 29, 2024 and sell it today you would earn a total of  387.00  from holding Hess Midstream Partners or generate 10.38% return on investment over 90 days.

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

Plains GP Holdings  vs.  Hess Midstream Partners

Plains GP Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plains GP Holdings are ranked lower than 6 (%) 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 March 2025.

Hess Midstream Partners

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Hess Midstream may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Plains GP and Hess Midstream

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

The idea behind Plains GP Holdings and Hess Midstream Partners 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.