Correlation Between Enbridge and Trainline Plc

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

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

Diversification Opportunities for Enbridge and Trainline Plc

0.86

Correlation Coefficient

Enbridge  Trainline Plc

Very poor diversification

The 3 months correlation between Enbridge and Trainline is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and Trainline Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trainline Plc 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 Trainline Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trainline Plc has no effect on the direction of Enbridge i.e., Enbridge and Trainline Plc go up and down completely randomly.

Pair Corralation between Enbridge and Trainline Plc

Assuming the 90 days trading horizon Enbridge is expected to generate 1.55 times less return on investment than Trainline Plc. But when comparing it to its historical volatility, Enbridge is 2.23 times less risky than Trainline Plc. It trades about 0.3 of its potential returns per unit of risk. Trainline Plc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  30,460  in Trainline Plc on September 2, 2024 and sell it today you would earn a total of  10,320  from holding Trainline Plc or generate 33.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	63.64%
Values	Daily Returns

Enbridge  vs.  Trainline Plc

Enbridge

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Enbridge unveiled solid returns over the last few months and may actually be approaching a breakup point.

Trainline Plc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Trainline Plc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Trainline Plc exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge and Trainline Plc

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

The idea behind Enbridge and Trainline Plc 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.