Correlation Between NovaGold Resources and Enbridge Pref

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

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

Diversification Opportunities for NovaGold Resources and Enbridge Pref

-0.2

Correlation Coefficient

NovaGold Resources  Enbridge Pref

Good diversification

The 3 months correlation between NovaGold and Enbridge is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding NovaGold Resources and Enbridge Pref Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref Series and NovaGold Resources 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 NovaGold Resources are associated (or correlated) with Enbridge Pref. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref Series has no effect on the direction of NovaGold Resources i.e., NovaGold Resources and Enbridge Pref go up and down completely randomly.

Pair Corralation between NovaGold Resources and Enbridge Pref

Assuming the 90 days horizon NovaGold Resources is expected to generate 3.68 times less return on investment than Enbridge Pref. In addition to that, NovaGold Resources is 4.27 times more volatile than Enbridge Pref Series. It trades about 0.01 of its total potential returns per unit of risk. Enbridge Pref Series is currently generating about 0.09 per unit of volatility. If you would invest  2,264  in Enbridge Pref Series on December 24, 2024 and sell it today you would earn a total of  86.00  from holding Enbridge Pref Series or generate 3.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

NovaGold Resources  vs.  Enbridge Pref Series

NovaGold Resources

Risk-Adjusted Performance

Weak

Over the last 90 days NovaGold Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, NovaGold Resources is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Enbridge Pref Series

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref Series are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Enbridge Pref is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with NovaGold Resources and Enbridge Pref

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

The idea behind NovaGold Resources and Enbridge Pref Series 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.