Correlation Between Western Investment and Enbridge Pref

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

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

Diversification Opportunities for Western Investment and Enbridge Pref

0.32

Correlation Coefficient

Western Investment  Enbridge Pref

Weak diversification

The 3 months correlation between Western and Enbridge is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Western Investment 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 Western 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 Western Investment are associated (or correlated) with Enbridge Pref. 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 Western Investment i.e., Western Investment and Enbridge Pref go up and down completely randomly.

Pair Corralation between Western Investment and Enbridge Pref

Given the investment horizon of 90 days Western Investment is expected to generate 4.94 times more return on investment than Enbridge Pref. However, Western Investment is 4.94 times more volatile than Enbridge Pref 5. It trades about 0.05 of its potential returns per unit of risk. Enbridge Pref 5 is currently generating about 0.11 per unit of risk. If you would invest  36.00  in Western Investment on September 30, 2024 and sell it today you would earn a total of  19.00  from holding Western Investment or generate 52.78% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.11%
Values	Daily Returns

Western Investment  vs.  Enbridge Pref 5

Western Investment

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Western Investment are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Western Investment showed solid returns over the last few months and may actually be approaching a breakup point.

Enbridge Pref 5

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge Pref 5 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Enbridge Pref 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 Western Investment and Enbridge Pref

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

The idea behind Western Investment 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.