Correlation Between VersaBank and Enbridge Pref

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

By analyzing existing cross correlation between VersaBank and Enbridge Pref 1, you can compare the effects of market volatilities on VersaBank 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 VersaBank with a short position of Enbridge Pref. Check out your portfolio center. Please also check ongoing floating volatility patterns of VersaBank and Enbridge Pref.

Diversification Opportunities for VersaBank and Enbridge Pref

0.76

Correlation Coefficient

VersaBank  Enbridge Pref

Poor diversification

The 3 months correlation between VersaBank and Enbridge is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding VersaBank and Enbridge Pref 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 1 and VersaBank 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 VersaBank 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 1 has no effect on the direction of VersaBank i.e., VersaBank and Enbridge Pref go up and down completely randomly.

Pair Corralation between VersaBank and Enbridge Pref

Assuming the 90 days trading horizon VersaBank is expected to generate 2.94 times more return on investment than Enbridge Pref. However, VersaBank is 2.94 times more volatile than Enbridge Pref 1. It trades about 0.08 of its potential returns per unit of risk. Enbridge Pref 1 is currently generating about 0.07 per unit of risk. If you would invest  988.00  in VersaBank on September 30, 2024 and sell it today you would earn a total of  961.00  from holding VersaBank or generate 97.27% return on investment over 90 days.

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

VersaBank  vs.  Enbridge Pref 1

VersaBank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VersaBank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, VersaBank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enbridge Pref 1

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 1 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Enbridge Pref is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with VersaBank and Enbridge Pref

The main advantage of trading using opposite VersaBank and Enbridge Pref positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VersaBank 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 VersaBank and Enbridge Pref 1 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.