Correlation Between NGL Energy and Enbridge

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

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

Diversification Opportunities for NGL Energy and Enbridge

0.86

Correlation Coefficient

NGL Energy  Enbridge

Very poor diversification

The 3 months correlation between NGL and Enbridge is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding NGL Energy Partners and Enbridge in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enbridge and NGL Energy 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 NGL Energy Partners 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 NGL Energy i.e., NGL Energy and Enbridge go up and down completely randomly.

Pair Corralation between NGL Energy and Enbridge

Assuming the 90 days trading horizon NGL Energy Partners is expected to generate 0.84 times more return on investment than Enbridge. However, NGL Energy Partners is 1.18 times less risky than Enbridge. It trades about 0.12 of its potential returns per unit of risk. Enbridge is currently generating about 0.04 per unit of risk. If you would invest  2,325  in NGL Energy Partners on September 13, 2024 and sell it today you would earn a total of  73.00  from holding NGL Energy Partners or generate 3.14% return on investment over 90 days.

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

NGL Energy Partners  vs.  Enbridge

NGL Energy Partners

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NGL Energy Partners are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting essential indicators, NGL Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Enbridge

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enbridge are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Enbridge may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with NGL Energy and Enbridge

The main advantage of trading using opposite NGL Energy and Enbridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NGL Energy 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 NGL Energy Partners 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.