Correlation Between Enbridge Pref and European Residential

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

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

Diversification Opportunities for Enbridge Pref and European Residential

-0.61

Correlation Coefficient

Enbridge Pref  European Residential

Excellent diversification

The 3 months correlation between Enbridge and European is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref Series and European Residential Real in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Residential Real and Enbridge Pref 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 Pref Series are associated (or correlated) with European Residential. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Residential Real has no effect on the direction of Enbridge Pref i.e., Enbridge Pref and European Residential go up and down completely randomly.

Pair Corralation between Enbridge Pref and European Residential

Assuming the 90 days trading horizon Enbridge Pref Series is expected to under-perform the European Residential. But the preferred stock apears to be less risky and, when comparing its historical volatility, Enbridge Pref Series is 3.7 times less risky than European Residential. The preferred stock trades about -0.13 of its potential returns per unit of risk. The European Residential Real is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  324.00  in European Residential Real on October 1, 2024 and sell it today you would earn a total of  58.00  from holding European Residential Real or generate 17.9% return on investment over 90 days.

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

Enbridge Pref Series  vs.  European Residential Real

Enbridge Pref Series

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enbridge Pref Series has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Enbridge Pref is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

European Residential Real

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in European Residential Real are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, European Residential sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge Pref and European Residential

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

The idea behind Enbridge Pref Series and European Residential Real 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.