Correlation Between Enbridge and BP Prudhoe

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

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

Diversification Opportunities for Enbridge and BP Prudhoe

-0.48

Correlation Coefficient

Enbridge  BP Prudhoe

Very good diversification

The 3 months correlation between Enbridge and BPT is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and BP Prudhoe Bay in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP Prudhoe Bay 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 BP Prudhoe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP Prudhoe Bay has no effect on the direction of Enbridge i.e., Enbridge and BP Prudhoe go up and down completely randomly.

Pair Corralation between Enbridge and BP Prudhoe

Considering the 90-day investment horizon Enbridge is expected to generate 0.16 times more return on investment than BP Prudhoe. However, Enbridge is 6.41 times less risky than BP Prudhoe. It trades about 0.18 of its potential returns per unit of risk. BP Prudhoe Bay is currently generating about -0.1 per unit of risk. If you would invest  3,980  in Enbridge on September 4, 2024 and sell it today you would earn a total of  356.00  from holding Enbridge or generate 8.94% return on investment over 90 days.

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

Enbridge  vs.  BP Prudhoe Bay

Enbridge

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Enbridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BP Prudhoe Bay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP Prudhoe Bay has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Enbridge and BP Prudhoe

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

The idea behind Enbridge and BP Prudhoe Bay 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.