Correlation Between Topaz Energy and Enbridge

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

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

Diversification Opportunities for Topaz Energy and Enbridge

0.78

Correlation Coefficient

Topaz Energy  Enbridge

Poor diversification

The 3 months correlation between Topaz and Enbridge is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Topaz Energy Corp and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge and Topaz Energy 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 Topaz Energy Corp 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 Topaz Energy i.e., Topaz Energy and Enbridge go up and down completely randomly.

Pair Corralation between Topaz Energy and Enbridge

Assuming the 90 days trading horizon Topaz Energy is expected to generate 1.54 times less return on investment than Enbridge. In addition to that, Topaz Energy is 1.75 times more volatile than Enbridge. It trades about 0.08 of its total potential returns per unit of risk. Enbridge is currently generating about 0.22 per unit of volatility. If you would invest  5,415  in Enbridge on September 12, 2024 and sell it today you would earn a total of  582.00  from holding Enbridge or generate 10.75% return on investment over 90 days.

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

Topaz Energy Corp  vs.  Enbridge

Topaz Energy Corp

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Topaz Energy Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Topaz Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enbridge

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Enbridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Topaz Energy and Enbridge

The main advantage of trading using opposite Topaz Energy and Enbridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Topaz Energy 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 Topaz Energy Corp 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.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.