Correlation Between Targa Resources and Hess Midstream

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

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

Diversification Opportunities for Targa Resources and Hess Midstream

0.85

Correlation Coefficient

Targa Resources  Hess Midstream

Very poor diversification

The 3 months correlation between Targa and Hess is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Targa Resources 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 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 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 Targa Resources i.e., Targa Resources and Hess Midstream go up and down completely randomly.

Pair Corralation between Targa Resources and Hess Midstream

Given the investment horizon of 90 days Targa Resources is expected to generate 1.22 times more return on investment than Hess Midstream. However, Targa Resources is 1.22 times more volatile than Hess Midstream Partners. It trades about 0.15 of its potential returns per unit of risk. Hess Midstream Partners is currently generating about 0.1 per unit of risk. If you would invest  6,904  in Targa Resources on December 1, 2024 and sell it today you would earn a total of  13,268  from holding Targa Resources or generate 192.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.8%
Values	Daily Returns

Targa Resources  vs.  Hess Midstream Partners

Targa Resources

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Targa Resources are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Targa Resources is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Hess Midstream Partners

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Hess Midstream displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Targa Resources and Hess Midstream

The main advantage of trading using opposite Targa Resources and Hess Midstream positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Targa Resources 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 Targa Resources 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 Commodity Directory module to find actively traded commodities issued by global exchanges.