Correlation Between Advantage Oil and Enbridge Pref

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

By analyzing existing cross correlation between Advantage Oil Gas and Enbridge Pref 5, you can compare the effects of market volatilities on Advantage Oil and Enbridge Pref 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 Advantage Oil with a short position of Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Advantage Oil and Enbridge Pref.

Diversification Opportunities for Advantage Oil and Enbridge Pref

0.22

Correlation Coefficient

Advantage Oil  Enbridge Pref

Modest diversification

The 3 months correlation between Advantage and Enbridge is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Advantage Oil Gas and Enbridge Pref 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 5 and Advantage Oil 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 Advantage Oil Gas are associated (or correlated) with Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 5 has no effect on the direction of Advantage Oil i.e., Advantage Oil and Enbridge Pref go up and down completely randomly.

Pair Corralation between Advantage Oil and Enbridge Pref

Assuming the 90 days trading horizon Advantage Oil is expected to generate 2.29 times less return on investment than Enbridge Pref. In addition to that, Advantage Oil is 2.94 times more volatile than Enbridge Pref 5. It trades about 0.02 of its total potential returns per unit of risk. Enbridge Pref 5 is currently generating about 0.14 per unit of volatility. If you would invest  1,765  in Enbridge Pref 5 on October 4, 2024 and sell it today you would earn a total of  662.00  from holding Enbridge Pref 5 or generate 37.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Advantage Oil Gas  vs.  Enbridge Pref 5

Advantage Oil Gas

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Advantage Oil Gas are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Advantage Oil is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Enbridge Pref 5

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Enbridge Pref is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Advantage Oil and Enbridge Pref

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

The idea behind Advantage Oil Gas and Enbridge Pref 5 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.