Correlation Between Targa Resources and Genesis Energy

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

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

Diversification Opportunities for Targa Resources and Genesis Energy

-0.76

Correlation Coefficient

Targa Resources  Genesis Energy

Pay attention - limited upside

The 3 months correlation between Targa and Genesis is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Targa Resources and Genesis Energy LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genesis Energy LP and Targa Resources 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 Targa Resources are associated (or correlated) with Genesis Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genesis Energy LP has no effect on the direction of Targa Resources i.e., Targa Resources and Genesis Energy go up and down completely randomly.

Pair Corralation between Targa Resources and Genesis Energy

Given the investment horizon of 90 days Targa Resources is expected to generate 0.8 times more return on investment than Genesis Energy. However, Targa Resources is 1.25 times less risky than Genesis Energy. It trades about 0.29 of its potential returns per unit of risk. Genesis Energy LP is currently generating about -0.07 per unit of risk. 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 Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Targa Resources  vs.  Genesis Energy LP

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.

Genesis Energy LP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genesis Energy LP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Targa Resources and Genesis Energy

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

The idea behind Targa Resources and Genesis Energy 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.