Correlation Between Hess Midstream and MPLX LP

Can any of the company-specific risk be diversified away by investing in both Hess Midstream 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 Hess Midstream and MPLX LP 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 MPLX LP, you can compare the effects of market volatilities on Hess Midstream 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 Hess Midstream with a short position of MPLX LP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hess Midstream and MPLX LP.

Diversification Opportunities for Hess Midstream and MPLX LP

0.43

Correlation Coefficient

Hess Midstream  MPLX LP

Very weak diversification

The 3 months correlation between Hess and MPLX is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Hess Midstream Partners and MPLX LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPLX LP 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 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 Hess Midstream i.e., Hess Midstream and MPLX LP go up and down completely randomly.

Pair Corralation between Hess Midstream and MPLX LP

Given the investment horizon of 90 days Hess Midstream is expected to generate 8.49 times less return on investment than MPLX LP. In addition to that, Hess Midstream is 1.27 times more volatile than MPLX LP. It trades about 0.03 of its total potential returns per unit of risk. MPLX LP is currently generating about 0.33 per unit of volatility. If you would invest  4,201  in MPLX LP on August 30, 2024 and sell it today you would earn a total of  852.00  from holding MPLX LP or generate 20.28% return on investment over 90 days.

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

Hess Midstream Partners  vs.  MPLX LP

Hess Midstream Partners

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hess Midstream Partners are ranked lower than 2 (%) 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.

MPLX LP

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MPLX LP are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, MPLX LP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hess Midstream and MPLX LP

The main advantage of trading using opposite Hess Midstream and MPLX LP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hess Midstream 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 Hess Midstream Partners 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.