Correlation Between Targa Resources and Highlight Communications

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

Diversification Opportunities for Targa Resources and Highlight Communications

0.5

Correlation Coefficient

Targa Resources  Highlight Communications

Very weak diversification

The 3 months correlation between Targa and Highlight is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Targa Resources Corp and Highlight Communications AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Highlight Communications 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 Highlight Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Highlight Communications has no effect on the direction of Targa Resources i.e., Targa Resources and Highlight Communications go up and down completely randomly.

Pair Corralation between Targa Resources and Highlight Communications

Assuming the 90 days horizon Targa Resources Corp is expected to generate 0.65 times more return on investment than Highlight Communications. However, Targa Resources Corp is 1.54 times less risky than Highlight Communications. It trades about 0.12 of its potential returns per unit of risk. Highlight Communications AG is currently generating about -0.08 per unit of risk. If you would invest  6,564  in Targa Resources Corp on October 4, 2024 and sell it today you would earn a total of  10,276  from holding Targa Resources Corp or generate 156.55% return on investment over 90 days.

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

Targa Resources Corp  vs.  Highlight Communications AG

Targa Resources Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Targa Resources Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Targa Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Highlight Communications

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Highlight Communications AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Highlight Communications unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Targa Resources and Highlight Communications

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

The idea behind Targa Resources Corp and Highlight Communications AG 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.