Correlation Between Enbridge and CONSOL Energy

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

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

Diversification Opportunities for Enbridge and CONSOL Energy

0.9

Correlation Coefficient

Enbridge  CONSOL Energy

Almost no diversification

The 3 months correlation between Enbridge and CONSOL is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and CONSOL Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CONSOL Energy 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 CONSOL Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CONSOL Energy has no effect on the direction of Enbridge i.e., Enbridge and CONSOL Energy go up and down completely randomly.

Pair Corralation between Enbridge and CONSOL Energy

Assuming the 90 days horizon Enbridge is expected to generate 1.34 times less return on investment than CONSOL Energy. But when comparing it to its historical volatility, Enbridge is 2.39 times less risky than CONSOL Energy. It trades about 0.13 of its potential returns per unit of risk. CONSOL Energy is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  7,957  in CONSOL Energy on September 24, 2024 and sell it today you would earn a total of  2,393  from holding CONSOL Energy or generate 30.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Enbridge  vs.  CONSOL Energy

Enbridge

Risk-Adjusted Performance

8 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Enbridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CONSOL Energy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CONSOL Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CONSOL Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge and CONSOL Energy

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

The idea behind Enbridge and CONSOL Energy 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.