Correlation Between Enbridge Pref and PrairieSky Royalty

Can any of the company-specific risk be diversified away by investing in both Enbridge Pref and PrairieSky Royalty 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 PrairieSky Royalty 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 PrairieSky Royalty, you can compare the effects of market volatilities on Enbridge Pref and PrairieSky Royalty 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 PrairieSky Royalty. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enbridge Pref and PrairieSky Royalty.

Diversification Opportunities for Enbridge Pref and PrairieSky Royalty

0.82

Correlation Coefficient

Enbridge Pref  PrairieSky Royalty

Very poor diversification

The 3 months correlation between Enbridge and PrairieSky is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge Pref 5 and PrairieSky Royalty in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PrairieSky Royalty 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 PrairieSky Royalty. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PrairieSky Royalty has no effect on the direction of Enbridge Pref i.e., Enbridge Pref and PrairieSky Royalty go up and down completely randomly.

Pair Corralation between Enbridge Pref and PrairieSky Royalty

Assuming the 90 days trading horizon Enbridge Pref is expected to generate 1.68 times less return on investment than PrairieSky Royalty. But when comparing it to its historical volatility, Enbridge Pref 5 is 3.0 times less risky than PrairieSky Royalty. It trades about 0.2 of its potential returns per unit of risk. PrairieSky Royalty is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  2,655  in PrairieSky Royalty on September 16, 2024 and sell it today you would earn a total of  244.00  from holding PrairieSky Royalty or generate 9.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.46%
Values	Daily Returns

Enbridge Pref 5  vs.  PrairieSky Royalty

Enbridge Pref 5

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 15 (%) 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.

PrairieSky Royalty

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PrairieSky Royalty are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward-looking signals, PrairieSky Royalty may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Enbridge Pref and PrairieSky Royalty

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

The idea behind Enbridge Pref 5 and PrairieSky Royalty 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.