Correlation Between Brompton European and Enbridge Pref

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

By analyzing existing cross correlation between Brompton European Dividend and Enbridge Pref 13, you can compare the effects of market volatilities on Brompton European 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 Brompton European with a short position of Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and Enbridge Pref.

Diversification Opportunities for Brompton European and Enbridge Pref

-0.22

Correlation Coefficient

Brompton European  Enbridge Pref

Very good diversification

The 3 months correlation between Brompton and Enbridge is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and Enbridge Pref 13 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 13 and Brompton European 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 Brompton European Dividend 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 13 has no effect on the direction of Brompton European i.e., Brompton European and Enbridge Pref go up and down completely randomly.

Pair Corralation between Brompton European and Enbridge Pref

Assuming the 90 days trading horizon Brompton European Dividend is expected to under-perform the Enbridge Pref. In addition to that, Brompton European is 1.66 times more volatile than Enbridge Pref 13. It trades about -0.01 of its total potential returns per unit of risk. Enbridge Pref 13 is currently generating about 0.34 per unit of volatility. If you would invest  1,802  in Enbridge Pref 13 on September 22, 2024 and sell it today you would earn a total of  117.00  from holding Enbridge Pref 13 or generate 6.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Brompton European Dividend  vs.  Enbridge Pref 13

Brompton European

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brompton European Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brompton European is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Enbridge Pref 13

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 13 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal basic indicators, Enbridge Pref may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brompton European and Enbridge Pref

The main advantage of trading using opposite Brompton European and Enbridge Pref positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brompton European 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 Brompton European Dividend and Enbridge Pref 13 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.