Correlation Between Enbridge and Fortis

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

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

Diversification Opportunities for Enbridge and Fortis

0.03

Correlation Coefficient

Enbridge  Fortis

Significant diversification

The 3 months correlation between Enbridge and Fortis is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and Fortis Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortis Inc 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 Fortis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortis Inc has no effect on the direction of Enbridge i.e., Enbridge and Fortis go up and down completely randomly.

Pair Corralation between Enbridge and Fortis

Assuming the 90 days trading horizon Enbridge is expected to generate 0.97 times more return on investment than Fortis. However, Enbridge is 1.03 times less risky than Fortis. It trades about 0.07 of its potential returns per unit of risk. Fortis Inc is currently generating about 0.06 per unit of risk. If you would invest  4,500  in Enbridge on November 20, 2024 and sell it today you would earn a total of  1,608  from holding Enbridge or generate 35.73% return on investment over 90 days.

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

Enbridge  vs.  Fortis Inc

Enbridge

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Enbridge is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Fortis Inc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fortis Inc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Fortis is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Enbridge and Fortis

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

The idea behind Enbridge and Fortis Inc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.