Correlation Between Enbridge and MPLX LP

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

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

Diversification Opportunities for Enbridge and MPLX LP

0.93

Correlation Coefficient

Enbridge  MPLX LP

Almost no diversification

The 3 months correlation between Enbridge and MPLX is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Enbridge and MPLX LP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MPLX LP 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 MPLX LP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MPLX LP has no effect on the direction of Enbridge i.e., Enbridge and MPLX LP go up and down completely randomly.

Pair Corralation between Enbridge and MPLX LP

Considering the 90-day investment horizon Enbridge is expected to generate 2.41 times less return on investment than MPLX LP. But when comparing it to its historical volatility, Enbridge is 1.2 times less risky than MPLX LP. It trades about 0.18 of its potential returns per unit of risk. MPLX LP is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  4,157  in MPLX LP on September 4, 2024 and sell it today you would earn a total of  962.00  from holding MPLX LP or generate 23.14% return on investment over 90 days.

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

Enbridge  vs.  MPLX LP

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.

MPLX LP

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in MPLX LP are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, MPLX LP showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enbridge and MPLX LP

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

The idea behind Enbridge and MPLX LP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.