Correlation Between General Electric and Enerflex

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Can any of the company-specific risk be diversified away by investing in both General Electric and Enerflex 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 General Electric and Enerflex into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between General Electric and Enerflex, you can compare the effects of market volatilities on General Electric and Enerflex 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 General Electric with a short position of Enerflex. Check out your portfolio center. Please also check ongoing floating volatility patterns of General Electric and Enerflex.

Diversification Opportunities for General Electric and Enerflex

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between General and Enerflex is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Enerflex in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enerflex and General Electric 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 General Electric are associated (or correlated) with Enerflex. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enerflex has no effect on the direction of General Electric i.e., General Electric and Enerflex go up and down completely randomly.

Pair Corralation between General Electric and Enerflex

Allowing for the 90-day total investment horizon General Electric is expected to generate 0.53 times more return on investment than Enerflex. However, General Electric is 1.9 times less risky than Enerflex. It trades about 0.3 of its potential returns per unit of risk. Enerflex is currently generating about 0.12 per unit of risk. If you would invest  10,872  in General Electric on December 29, 2023 and sell it today you would earn a total of  7,140  from holding General Electric or generate 65.67% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Enerflex

 Performance 
       Timeline  
General Electric 

Risk-Adjusted Performance

35 of 100

 
Low
 
High
Very Strong
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 35 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.
Enerflex 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Enerflex are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Enerflex unveiled solid returns over the last few months and may actually be approaching a breakup point.

General Electric and Enerflex Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Enerflex

The main advantage of trading using opposite General Electric and Enerflex positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, Enerflex 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 Enerflex will offset losses from the drop in Enerflex's long position.
The idea behind General Electric and Enerflex 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.
Check out your portfolio center.
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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