Correlation Between Energy Transfer and MPLX LP

Can any of the company-specific risk be diversified away by investing in both Energy Transfer and MPLX LP 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 Energy Transfer and MPLX LP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy Transfer LP and MPLX LP, you can compare the effects of market volatilities on Energy Transfer and MPLX LP 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 Energy Transfer with a short position of MPLX LP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Transfer and MPLX LP.

Diversification Opportunities for Energy Transfer and MPLX LP

0.78

Correlation Coefficient

Energy Transfer  MPLX LP

Poor diversification

The 3 months correlation between Energy and MPLX is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Energy Transfer LP and MPLX LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPLX LP and Energy Transfer 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 Energy Transfer LP are associated (or correlated) with MPLX LP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPLX LP has no effect on the direction of Energy Transfer i.e., Energy Transfer and MPLX LP go up and down completely randomly.

Pair Corralation between Energy Transfer and MPLX LP

Assuming the 90 days horizon Energy Transfer is expected to generate 5.89 times less return on investment than MPLX LP. But when comparing it to its historical volatility, Energy Transfer LP is 1.68 times less risky than MPLX LP. It trades about 0.1 of its potential returns per unit of risk. MPLX LP is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  4,375  in MPLX LP on September 4, 2024 and sell it today you would earn a total of  744.00  from holding MPLX LP or generate 17.01% return on investment over 90 days.

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

Energy Transfer LP  vs.  MPLX LP

Energy Transfer LP

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Transfer LP are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Energy Transfer is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

MPLX LP

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in MPLX LP are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, MPLX LP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energy Transfer and MPLX LP

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

The idea behind Energy Transfer LP and MPLX LP 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.