Correlation Between Plains GP and Golar LNG

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

By analyzing existing cross correlation between Plains GP Holdings and Golar LNG Limited, you can compare the effects of market volatilities on Plains GP and Golar LNG 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 Plains GP with a short position of Golar LNG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Plains GP and Golar LNG.

Diversification Opportunities for Plains GP and Golar LNG

0.09

Correlation Coefficient

Plains GP  Golar LNG

Significant diversification

The 3 months correlation between Plains and Golar is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Plains GP Holdings and Golar LNG Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Golar LNG Limited and Plains GP 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 Plains GP Holdings are associated (or correlated) with Golar LNG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Golar LNG Limited has no effect on the direction of Plains GP i.e., Plains GP and Golar LNG go up and down completely randomly.

Pair Corralation between Plains GP and Golar LNG

Given the investment horizon of 90 days Plains GP is expected to generate 3.72 times less return on investment than Golar LNG. But when comparing it to its historical volatility, Plains GP Holdings is 1.97 times less risky than Golar LNG. It trades about 0.07 of its potential returns per unit of risk. Golar LNG Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,204  in Golar LNG Limited on September 3, 2024 and sell it today you would earn a total of  733.00  from holding Golar LNG Limited or generate 22.88% return on investment over 90 days.

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

Plains GP Holdings  vs.  Golar LNG Limited

Plains GP Holdings

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plains GP Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Plains GP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Golar LNG Limited

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Golar LNG Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, Golar LNG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plains GP and Golar LNG

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

The idea behind Plains GP Holdings and Golar LNG Limited 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.