Correlation Between Hess Midstream and Enbridge

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

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

Diversification Opportunities for Hess Midstream and Enbridge

0.75

Correlation Coefficient

Hess Midstream  Enbridge

Poor diversification

The 3 months correlation between Hess and Enbridge is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Hess Midstream Partners and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge and Hess Midstream 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 Midstream Partners are associated (or correlated) with Enbridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge has no effect on the direction of Hess Midstream i.e., Hess Midstream and Enbridge go up and down completely randomly.

Pair Corralation between Hess Midstream and Enbridge

Given the investment horizon of 90 days Hess Midstream is expected to generate 3.37 times less return on investment than Enbridge. In addition to that, Hess Midstream is 1.57 times more volatile than Enbridge. It trades about 0.01 of its total potential returns per unit of risk. Enbridge is currently generating about 0.07 per unit of volatility. If you would invest  4,056  in Enbridge on September 15, 2024 and sell it today you would earn a total of  149.00  from holding Enbridge or generate 3.67% return on investment over 90 days.

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

Hess Midstream Partners  vs.  Enbridge

Hess Midstream Partners

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Hess Midstream is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Enbridge

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Enbridge is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hess Midstream and Enbridge

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

The idea behind Hess Midstream Partners and Enbridge 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.