Correlation Between Hess and Targa Resources
Can any of the company-specific risk be diversified away by investing in both Hess and Targa Resources 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 Hess and Targa Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hess Corporation and Targa Resources, you can compare the effects of market volatilities on Hess and Targa Resources 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 Hess with a short position of Targa Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hess and Targa Resources.
Diversification Opportunities for Hess and Targa Resources
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hess and Targa is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Hess Corp. and Targa Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Targa Resources and Hess 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 Hess Corporation are associated (or correlated) with Targa Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Targa Resources has no effect on the direction of Hess i.e., Hess and Targa Resources go up and down completely randomly.
Pair Corralation between Hess and Targa Resources
Considering the 90-day investment horizon Hess is expected to generate 1.23 times less return on investment than Targa Resources. But when comparing it to its historical volatility, Hess Corporation is 1.61 times less risky than Targa Resources. It trades about 1.1 of its potential returns per unit of risk. Targa Resources is currently generating about 0.85 of returns per unit of risk over similar time horizon. If you would invest 17,837 in Targa Resources on October 23, 2024 and sell it today you would earn a total of 3,735 from holding Targa Resources or generate 20.94% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hess Corp. vs. Targa Resources
Performance |
| Timeline |
| Hess |
| Targa Resources |
Hess and Targa Resources Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hess and Targa Resources
The main advantage of trading using opposite Hess and Targa Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hess position performs unexpectedly, Targa Resources 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 Targa Resources will offset losses from the drop in Targa Resources' long position.The idea behind Hess Corporation and Targa Resources 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.| Targa Resources vs. Plains GP Holdings | Targa Resources vs. Western Midstream Partners | Targa Resources vs. EnLink Midstream LLC | Targa Resources vs. Plains All American |
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..
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