Correlation Between Enbridge Pref and North American

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

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

Diversification Opportunities for Enbridge Pref and North American

0.11

Correlation Coefficient

Enbridge Pref  North American

Average diversification

The 3 months correlation between Enbridge and North is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref L and North American Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on North American Const 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 L are associated (or correlated) with North American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of North American Const has no effect on the direction of Enbridge Pref i.e., Enbridge Pref and North American go up and down completely randomly.

Pair Corralation between Enbridge Pref and North American

Assuming the 90 days trading horizon Enbridge Pref is expected to generate 3.22 times less return on investment than North American. But when comparing it to its historical volatility, Enbridge Pref L is 3.74 times less risky than North American. It trades about 0.15 of its potential returns per unit of risk. North American Construction is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,464  in North American Construction on September 13, 2024 and sell it today you would earn a total of  512.00  from holding North American Construction or generate 20.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Enbridge Pref L  vs.  North American Construction

Enbridge Pref L

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref L are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Enbridge Pref may actually be approaching a critical reversion point that can send shares even higher in January 2025.

North American Const

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, North American displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge Pref and North American

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

The idea behind Enbridge Pref L and North American Construction 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.