Correlation Between Enbridge and TC Energy

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

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

Diversification Opportunities for Enbridge and TC Energy

0.86

Correlation Coefficient

Enbridge  TC Energy

Very poor diversification

The 3 months correlation between Enbridge and TRS is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and TC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC 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 TC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Energy has no effect on the direction of Enbridge i.e., Enbridge and TC Energy go up and down completely randomly.

Pair Corralation between Enbridge and TC Energy

Assuming the 90 days horizon Enbridge is expected to generate 1.1 times more return on investment than TC Energy. However, Enbridge is 1.1 times more volatile than TC Energy. It trades about -0.14 of its potential returns per unit of risk. TC Energy is currently generating about -0.28 per unit of risk. If you would invest  4,107  in Enbridge on October 1, 2024 and sell it today you would lose (102.00) from holding Enbridge or give up 2.48% of portfolio value over 90 days.

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

Enbridge  vs.  TC Energy

Enbridge

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 10 (%) 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.

TC Energy

Risk-Adjusted Performance

10 of 100

OK

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

Pair Trading with Enbridge and TC Energy

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

The idea behind Enbridge and TC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.