Correlation Between Enerflex and Westaim Corp

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

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

Diversification Opportunities for Enerflex and Westaim Corp

0.78

Correlation Coefficient

Enerflex  Westaim Corp

Poor diversification

The 3 months correlation between Enerflex and Westaim is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Enerflex and Westaim Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westaim Corp and Enerflex 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 Enerflex are associated (or correlated) with Westaim Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westaim Corp has no effect on the direction of Enerflex i.e., Enerflex and Westaim Corp go up and down completely randomly.

Pair Corralation between Enerflex and Westaim Corp

Assuming the 90 days trading horizon Enerflex is expected to generate 0.82 times more return on investment than Westaim Corp. However, Enerflex is 1.22 times less risky than Westaim Corp. It trades about 0.37 of its potential returns per unit of risk. Westaim Corp is currently generating about 0.18 per unit of risk. If you would invest  785.00  in Enerflex on September 4, 2024 and sell it today you would earn a total of  497.00  from holding Enerflex or generate 63.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Enerflex  vs.  Westaim Corp

Enerflex

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Enerflex are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Enerflex displayed solid returns over the last few months and may actually be approaching a breakup point.

Westaim Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Westaim Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Westaim Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enerflex and Westaim Corp

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

The idea behind Enerflex and Westaim Corp 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.