Correlation Between National Retail and Targa Resources

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

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

Diversification Opportunities for National Retail and Targa Resources

-0.54

Correlation Coefficient

National Retail  Targa Resources

Excellent diversification

The 3 months correlation between National and Targa is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding National Retail Properties and Targa Resources Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Targa Resources Corp and National Retail 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 National Retail Properties 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 Corp has no effect on the direction of National Retail i.e., National Retail and Targa Resources go up and down completely randomly.

Pair Corralation between National Retail and Targa Resources

Assuming the 90 days trading horizon National Retail Properties is expected to under-perform the Targa Resources. But the stock apears to be less risky and, when comparing its historical volatility, National Retail Properties is 1.27 times less risky than Targa Resources. The stock trades about -0.09 of its potential returns per unit of risk. The Targa Resources Corp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  13,165  in Targa Resources Corp on September 28, 2024 and sell it today you would earn a total of  3,915  from holding Targa Resources Corp or generate 29.74% return on investment over 90 days.

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

National Retail Properties  vs.  Targa Resources Corp

National Retail Prop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Retail Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Targa Resources Corp

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Targa Resources Corp are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Targa Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with National Retail and Targa Resources

The main advantage of trading using opposite National Retail and Targa Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Retail 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 National Retail Properties and Targa Resources Corp 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 Transaction History module to view history of all your transactions and understand their impact on performance.