Correlation Between Enbridge Pref and Eni SPA

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

By analyzing existing cross correlation between Enbridge Pref 5 and Enterprise Group, you can compare the effects of market volatilities on Enbridge Pref and Eni SPA 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 Eni SPA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enbridge Pref and Eni SPA.

Diversification Opportunities for Enbridge Pref and Eni SPA

0.75

Correlation Coefficient

Enbridge Pref  Eni SPA

Poor diversification

The 3 months correlation between Enbridge and Eni is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref 5 and Enterprise Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enterprise Group 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 5 are associated (or correlated) with Eni SPA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enterprise Group has no effect on the direction of Enbridge Pref i.e., Enbridge Pref and Eni SPA go up and down completely randomly.

Pair Corralation between Enbridge Pref and Eni SPA

Assuming the 90 days trading horizon Enbridge Pref 5 is expected to generate 0.05 times more return on investment than Eni SPA. However, Enbridge Pref 5 is 19.14 times less risky than Eni SPA. It trades about -0.14 of its potential returns per unit of risk. Enterprise Group is currently generating about -0.09 per unit of risk. If you would invest  2,396  in Enbridge Pref 5 on September 21, 2024 and sell it today you would lose (15.00) from holding Enbridge Pref 5 or give up 0.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	86.96%
Values	Daily Returns

Enbridge Pref 5  vs.  Enterprise Group

Enbridge Pref 5

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 10 (%) 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 latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Enterprise Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enterprise Group are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Eni SPA displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge Pref and Eni SPA

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

The idea behind Enbridge Pref 5 and Enterprise Group 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.