Correlation Between Southern California and Enbridge

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

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

Diversification Opportunities for Southern California and Enbridge

-0.41

Correlation Coefficient

Southern California  Enbridge

Very good diversification

The 3 months correlation between Southern and Enbridge is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Southern California Gas and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge and Southern California 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 Southern California Gas 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 has no effect on the direction of Southern California i.e., Southern California and Enbridge go up and down completely randomly.

Pair Corralation between Southern California and Enbridge

Assuming the 90 days horizon Southern California is expected to generate 2.04 times less return on investment than Enbridge. In addition to that, Southern California is 3.33 times more volatile than Enbridge. It trades about 0.01 of its total potential returns per unit of risk. Enbridge is currently generating about 0.07 per unit of volatility. If you would invest  4,056  in Enbridge on September 15, 2024 and sell it today you would earn a total of  149.00  from holding Enbridge or generate 3.67% return on investment over 90 days.

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

Southern California Gas  vs.  Enbridge

Southern California Gas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern California Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Southern California is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Enbridge

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Enbridge is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Southern California and Enbridge

The main advantage of trading using opposite Southern California and Enbridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Southern California 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 Southern California Gas and Enbridge 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.