Correlation Between Targa Resources and Cheniere Energy

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

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

Diversification Opportunities for Targa Resources and Cheniere Energy

0.72

Correlation Coefficient

Targa Resources  Cheniere Energy

Poor diversification

The 3 months correlation between Targa and Cheniere is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Targa Resources Corp and Cheniere Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cheniere Energy and Targa Resources 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 Targa Resources Corp are associated (or correlated) with Cheniere Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cheniere Energy has no effect on the direction of Targa Resources i.e., Targa Resources and Cheniere Energy go up and down completely randomly.

Pair Corralation between Targa Resources and Cheniere Energy

Assuming the 90 days horizon Targa Resources Corp is expected to under-perform the Cheniere Energy. But the stock apears to be less risky and, when comparing its historical volatility, Targa Resources Corp is 1.04 times less risky than Cheniere Energy. The stock trades about -0.02 of its potential returns per unit of risk. The Cheniere Energy is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  20,324  in Cheniere Energy on December 10, 2024 and sell it today you would lose (499.00) from holding Cheniere Energy or give up 2.46% of portfolio value over 90 days.

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

Targa Resources Corp  vs.  Cheniere Energy

Targa Resources Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Targa Resources Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Targa Resources is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Cheniere Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cheniere Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Cheniere Energy is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Targa Resources and Cheniere Energy

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

The idea behind Targa Resources Corp and Cheniere Energy 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..