Correlation Between Enbridge and Ithaca Energy

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

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

Diversification Opportunities for Enbridge and Ithaca Energy

0.61

Correlation Coefficient

Enbridge  Ithaca Energy

Poor diversification

The 3 months correlation between Enbridge and Ithaca is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and Ithaca Energy PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ithaca Energy PLC and Enbridge 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 Enbridge are associated (or correlated) with Ithaca Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ithaca Energy PLC has no effect on the direction of Enbridge i.e., Enbridge and Ithaca Energy go up and down completely randomly.

Pair Corralation between Enbridge and Ithaca Energy

Assuming the 90 days trading horizon Enbridge is expected to generate 1.5 times less return on investment than Ithaca Energy. But when comparing it to its historical volatility, Enbridge is 2.73 times less risky than Ithaca Energy. It trades about 0.27 of its potential returns per unit of risk. Ithaca Energy PLC is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  10,190  in Ithaca Energy PLC on October 14, 2024 and sell it today you would earn a total of  2,790  from holding Ithaca Energy PLC or generate 27.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	65.08%
Values	Daily Returns

Enbridge  vs.  Ithaca Energy PLC

Enbridge

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Enbridge unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ithaca Energy PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ithaca Energy PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Ithaca Energy exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge and Ithaca Energy

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

The idea behind Enbridge and Ithaca Energy PLC 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 Stocks Directory module to find actively traded stocks across global markets.