Correlation Between Nasdaq and Enbridge

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

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

Diversification Opportunities for Nasdaq and Enbridge

0.44

Correlation Coefficient

Nasdaq  Enbridge

Very weak diversification

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

Pair Corralation between Nasdaq and Enbridge

Given the investment horizon of 90 days Nasdaq Inc is expected to generate 1.19 times more return on investment than Enbridge. However, Nasdaq is 1.19 times more volatile than Enbridge. It trades about 0.11 of its potential returns per unit of risk. Enbridge is currently generating about 0.08 per unit of risk. If you would invest  4,802  in Nasdaq Inc on September 30, 2024 and sell it today you would earn a total of  3,040  from holding Nasdaq Inc or generate 63.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.93%
Values	Daily Returns

Nasdaq Inc  vs.  Enbridge

Nasdaq Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nasdaq Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady basic indicators, Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enbridge

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Enbridge is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Nasdaq and Enbridge

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

The idea behind Nasdaq Inc and Enbridge 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 Transaction History module to view history of all your transactions and understand their impact on performance.