Correlation Between Enbridge Pref and Exxon

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

By analyzing existing cross correlation between Enbridge Pref 11 and EXXON MOBIL CDR, you can compare the effects of market volatilities on Enbridge Pref and Exxon 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 Pref with a short position of Exxon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enbridge Pref and Exxon.

Diversification Opportunities for Enbridge Pref and Exxon

0.38

Correlation Coefficient

Enbridge Pref  Exxon

Weak diversification

The 3 months correlation between Enbridge and Exxon is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref 11 and EXXON MOBIL CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EXXON MOBIL CDR and Enbridge Pref 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 Pref 11 are associated (or correlated) with Exxon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EXXON MOBIL CDR has no effect on the direction of Enbridge Pref i.e., Enbridge Pref and Exxon go up and down completely randomly.

Pair Corralation between Enbridge Pref and Exxon

Assuming the 90 days trading horizon Enbridge Pref is expected to generate 1.49 times less return on investment than Exxon. But when comparing it to its historical volatility, Enbridge Pref 11 is 2.21 times less risky than Exxon. It trades about 0.07 of its potential returns per unit of risk. EXXON MOBIL CDR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,128  in EXXON MOBIL CDR on September 4, 2024 and sell it today you would earn a total of  77.00  from holding EXXON MOBIL CDR or generate 3.62% return on investment over 90 days.

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

Enbridge Pref 11  vs.  EXXON MOBIL CDR

Enbridge Pref 11

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 11 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Enbridge Pref is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

EXXON MOBIL CDR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EXXON MOBIL CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Exxon is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Enbridge Pref and Exxon

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

The idea behind Enbridge Pref 11 and EXXON MOBIL CDR 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.