Correlation Between Plains GP and Williams Companies

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

Diversification Opportunities for Plains GP and Williams Companies

0.15

Correlation Coefficient

Plains GP  Williams Companies

Average diversification

The 3 months correlation between Plains and Williams is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Plains GP Holdings and Williams Companies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Williams Companies 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 Williams Companies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Williams Companies has no effect on the direction of Plains GP i.e., Plains GP and Williams Companies go up and down completely randomly.

Pair Corralation between Plains GP and Williams Companies

Given the investment horizon of 90 days Plains GP Holdings is expected to generate 1.12 times more return on investment than Williams Companies. However, Plains GP is 1.12 times more volatile than Williams Companies. It trades about 0.43 of its potential returns per unit of risk. Williams Companies is currently generating about 0.42 per unit of risk. If you would invest  1,733  in Plains GP Holdings on September 2, 2024 and sell it today you would earn a total of  269.00  from holding Plains GP Holdings or generate 15.52% return on investment over 90 days.

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

Plains GP Holdings  vs.  Williams Companies

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.

Williams Companies

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Williams Companies are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak primary indicators, Williams Companies sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plains GP and Williams Companies

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

The idea behind Plains GP Holdings and Williams Companies 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.