Correlation Between American Express and Enbridge

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

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

Diversification Opportunities for American Express and Enbridge

0.92

Correlation Coefficient

American Express  Enbridge

Almost no diversification

The 3 months correlation between American and Enbridge is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding American Express Co and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge and American Express 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 American Express Co are associated (or correlated) with Enbridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge has no effect on the direction of American Express i.e., American Express and Enbridge go up and down completely randomly.

Pair Corralation between American Express and Enbridge

Assuming the 90 days trading horizon American Express Co is expected to generate 1.31 times more return on investment than Enbridge. However, American Express is 1.31 times more volatile than Enbridge. It trades about -0.05 of its potential returns per unit of risk. Enbridge is currently generating about -0.07 per unit of risk. If you would invest  30,545  in American Express Co on September 26, 2024 and sell it today you would lose (455.00) from holding American Express Co or give up 1.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	68.18%
Values	Daily Returns

American Express Co  vs.  Enbridge

American Express

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Express Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, American Express may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enbridge

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 15 (%) 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.

Pair Trading with American Express and Enbridge

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

The idea behind American Express Co and Enbridge 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.