Correlation Between Plains GP and Enterprise Products
Can any of the company-specific risk be diversified away by investing in both Plains GP and Enterprise Products 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 Plains GP and Enterprise Products into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Plains GP Holdings and Enterprise Products Partners, you can compare the effects of market volatilities on Plains GP and Enterprise Products 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 Plains GP with a short position of Enterprise Products. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains GP and Enterprise Products.
Diversification Opportunities for Plains GP and Enterprise Products
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Plains and Enterprise is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Plains GP Holdings and Enterprise Products Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Products and Plains GP 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 Plains GP Holdings are associated (or correlated) with Enterprise Products. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Products has no effect on the direction of Plains GP i.e., Plains GP and Enterprise Products go up and down completely randomly.
Pair Corralation between Plains GP and Enterprise Products
Given the investment horizon of 90 days Plains GP Holdings is expected to generate 1.69 times more return on investment than Enterprise Products. However, Plains GP is 1.69 times more volatile than Enterprise Products Partners. It trades about 0.1 of its potential returns per unit of risk. Enterprise Products Partners is currently generating about 0.11 per unit of risk. If you would invest 1,187 in Plains GP Holdings on November 27, 2024 and sell it today you would earn a total of 958.00 from holding Plains GP Holdings or generate 80.71% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Plains GP Holdings vs. Enterprise Products Partners
Performance |
Timeline |
Plains GP Holdings |
Enterprise Products |
Plains GP and Enterprise Products Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Plains GP and Enterprise Products
The main advantage of trading using opposite Plains GP and Enterprise Products positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Plains GP position performs unexpectedly, Enterprise Products 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 Enterprise Products will offset losses from the drop in Enterprise Products' long position.Plains GP vs. Targa Resources | ||
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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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