Correlation Between Economic Investment and Enbridge

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

By analyzing existing cross correlation between Economic Investment Trust and Enbridge Pref 5, you can compare the effects of market volatilities on Economic Investment and Enbridge 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 Economic Investment with a short position of Enbridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Economic Investment and Enbridge.

Diversification Opportunities for Economic Investment and Enbridge

0.65

Correlation Coefficient

Economic Investment  Enbridge

Poor diversification

The 3 months correlation between Economic and Enbridge is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Economic Investment Trust and Enbridge Pref 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge Pref 5 and Economic Investment 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 Economic Investment Trust are associated (or correlated) with Enbridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enbridge Pref 5 has no effect on the direction of Economic Investment i.e., Economic Investment and Enbridge go up and down completely randomly.

Pair Corralation between Economic Investment and Enbridge

Assuming the 90 days trading horizon Economic Investment is expected to generate 1.27 times less return on investment than Enbridge. In addition to that, Economic Investment is 1.77 times more volatile than Enbridge Pref 5. It trades about 0.1 of its total potential returns per unit of risk. Enbridge Pref 5 is currently generating about 0.22 per unit of volatility. If you would invest  2,255  in Enbridge Pref 5 on September 9, 2024 and sell it today you would earn a total of  142.00  from holding Enbridge Pref 5 or generate 6.3% return on investment over 90 days.

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

Economic Investment Trust  vs.  Enbridge Pref 5

Economic Investment Trust

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Economic Investment Trust are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Economic Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Enbridge Pref 5

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Enbridge is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Economic Investment and Enbridge

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

The idea behind Economic Investment Trust and Enbridge Pref 5 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.