Correlation Between Enbridge Pref and Imperial Oil

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

By analyzing existing cross correlation between Enbridge Pref 5 and Imperial Oil, you can compare the effects of market volatilities on Enbridge Pref and Imperial Oil 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 Imperial Oil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enbridge Pref and Imperial Oil.

Diversification Opportunities for Enbridge Pref and Imperial Oil

0.8

Correlation Coefficient

Enbridge Pref  Imperial Oil

Very poor diversification

The 3 months correlation between Enbridge and Imperial is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref 5 and Imperial Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Oil 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 5 are associated (or correlated) with Imperial Oil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Oil has no effect on the direction of Enbridge Pref i.e., Enbridge Pref and Imperial Oil go up and down completely randomly.

Pair Corralation between Enbridge Pref and Imperial Oil

Assuming the 90 days trading horizon Enbridge Pref is expected to generate 1.65 times less return on investment than Imperial Oil. But when comparing it to its historical volatility, Enbridge Pref 5 is 3.85 times less risky than Imperial Oil. It trades about 0.21 of its potential returns per unit of risk. Imperial Oil is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,190  in Imperial Oil on September 6, 2024 and sell it today you would earn a total of  839.00  from holding Imperial Oil or generate 9.13% return on investment over 90 days.

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

Enbridge Pref 5  vs.  Imperial Oil

Enbridge Pref 5

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Enbridge Pref is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Imperial Oil

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Oil are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Imperial Oil may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Enbridge Pref and Imperial Oil

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

The idea behind Enbridge Pref 5 and Imperial Oil 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.