Correlation Between Targa Resources and Western Midstream

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

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

Diversification Opportunities for Targa Resources and Western Midstream

0.89

Correlation Coefficient

Targa Resources  Western Midstream

Very poor diversification

The 3 months correlation between Targa and Western is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Targa Resources and Western Midstream Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Midstream 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 Western Midstream. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Midstream has no effect on the direction of Targa Resources i.e., Targa Resources and Western Midstream go up and down completely randomly.

Pair Corralation between Targa Resources and Western Midstream

Given the investment horizon of 90 days Targa Resources is expected to under-perform the Western Midstream. In addition to that, Targa Resources is 1.5 times more volatile than Western Midstream Partners. It trades about -0.04 of its total potential returns per unit of risk. Western Midstream Partners is currently generating about -0.03 per unit of volatility. If you would invest  4,096  in Western Midstream Partners on January 28, 2025 and sell it today you would lose (215.50) from holding Western Midstream Partners or give up 5.26% of portfolio value over 90 days.

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

Targa Resources  vs.  Western Midstream Partners

Targa Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Targa Resources has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's technical and fundamental indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Western Midstream

Risk-Adjusted Performance

Very Weak

Over the last 90 days Western Midstream Partners has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Western Midstream is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Targa Resources and Western Midstream

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

The idea behind Targa Resources and Western Midstream Partners 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.

Check out your portfolio center.

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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.