Correlation Between Martin Midstream and Targa Resources

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

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

Diversification Opportunities for Martin Midstream and Targa Resources

0.72

Correlation Coefficient

Martin Midstream  Targa Resources

Poor diversification

The 3 months correlation between Martin and Targa is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Martin Midstream Partners and Targa Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Targa Resources and Martin 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 Martin Midstream Partners 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 has no effect on the direction of Martin Midstream i.e., Martin Midstream and Targa Resources go up and down completely randomly.

Pair Corralation between Martin Midstream and Targa Resources

Given the investment horizon of 90 days Martin Midstream is expected to generate 2.62 times less return on investment than Targa Resources. But when comparing it to its historical volatility, Martin Midstream Partners is 1.08 times less risky than Targa Resources. It trades about 0.12 of its potential returns per unit of risk. Targa Resources is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  14,921  in Targa Resources on August 31, 2024 and sell it today you would earn a total of  5,509  from holding Targa Resources or generate 36.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Martin Midstream Partners  vs.  Targa Resources

Martin Midstream Partners

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Martin Midstream Partners are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak essential indicators, Martin Midstream may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Targa Resources

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Targa Resources are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Targa Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Martin Midstream and Targa Resources

The main advantage of trading using opposite Martin Midstream and Targa Resources positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Martin Midstream 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 Martin Midstream Partners and Targa Resources 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.