Correlation Between Enbridge and Westport Fuel

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

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

Diversification Opportunities for Enbridge and Westport Fuel

-0.14

Correlation Coefficient

Enbridge  Westport Fuel

Good diversification

The 3 months correlation between Enbridge and Westport is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and Westport Fuel Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westport Fuel Systems and Enbridge 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 are associated (or correlated) with Westport Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westport Fuel Systems has no effect on the direction of Enbridge i.e., Enbridge and Westport Fuel go up and down completely randomly.

Pair Corralation between Enbridge and Westport Fuel

Assuming the 90 days trading horizon Enbridge is expected to generate 0.37 times more return on investment than Westport Fuel. However, Enbridge is 2.74 times less risky than Westport Fuel. It trades about 0.22 of its potential returns per unit of risk. Westport Fuel Systems is currently generating about -0.1 per unit of risk. If you would invest  5,415  in Enbridge on September 12, 2024 and sell it today you would earn a total of  582.00  from holding Enbridge or generate 10.75% return on investment over 90 days.

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

Enbridge  vs.  Westport Fuel Systems

Enbridge

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental drivers, Enbridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Westport Fuel Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Westport Fuel Systems has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Enbridge and Westport Fuel

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

The idea behind Enbridge and Westport Fuel Systems 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..