Correlation Between Enbridge and Southern California

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

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

Diversification Opportunities for Enbridge and Southern California

-0.44

Correlation Coefficient

Enbridge  Southern California

Very good diversification

The 3 months correlation between Enbridge and Southern is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and Southern California Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern California Gas 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 Southern California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern California Gas has no effect on the direction of Enbridge i.e., Enbridge and Southern California go up and down completely randomly.

Pair Corralation between Enbridge and Southern California

Considering the 90-day investment horizon Enbridge is expected to generate 1.07 times less return on investment than Southern California. But when comparing it to its historical volatility, Enbridge is 3.95 times less risky than Southern California. It trades about 0.22 of its potential returns per unit of risk. Southern California Gas is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,561  in Southern California Gas on October 11, 2024 and sell it today you would earn a total of  81.00  from holding Southern California Gas or generate 3.16% return on investment over 90 days.

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

Enbridge  vs.  Southern California Gas

Enbridge

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Enbridge may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Southern California Gas

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Southern California Gas are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Southern California is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Enbridge and Southern California

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

The idea behind Enbridge and Southern California Gas 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.