Correlation Between Targa Resources and Plains GP

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

By analyzing existing cross correlation between Targa Resources and Plains GP Holdings, you can compare the effects of market volatilities on Targa Resources and Plains GP 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 Plains GP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Targa Resources and Plains GP.

Diversification Opportunities for Targa Resources and Plains GP

0.74

Correlation Coefficient

Targa Resources  Plains GP

Poor diversification

The 3 months correlation between Targa and Plains is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Targa Resources and Plains GP Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plains GP Holdings 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 Plains GP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plains GP Holdings has no effect on the direction of Targa Resources i.e., Targa Resources and Plains GP go up and down completely randomly.

Pair Corralation between Targa Resources and Plains GP

Given the investment horizon of 90 days Targa Resources is expected to generate 1.0 times more return on investment than Plains GP. However, Targa Resources is 1.0 times more volatile than Plains GP Holdings. It trades about 0.16 of its potential returns per unit of risk. Plains GP Holdings is currently generating about 0.0 per unit of risk. If you would invest  10,841  in Targa Resources on March 19, 2024 and sell it today you would earn a total of  1,059  from holding Targa Resources or generate 9.77% return on investment over 90 days.

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

Targa Resources  vs.  Plains GP Holdings

Targa Resources

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Targa Resources are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting technical and fundamental indicators, Targa Resources may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Plains GP Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Plains GP Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Plains GP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Targa Resources and Plains GP

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

The idea behind Targa Resources and Plains GP Holdings 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.