Correlation Between Brookfield and Western Forest
Can any of the company-specific risk be diversified away by investing in both Brookfield and Western Forest 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 Brookfield and Western Forest into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brookfield and Western Forest Products, you can compare the effects of market volatilities on Brookfield and Western Forest 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 Brookfield with a short position of Western Forest. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield and Western Forest.
Diversification Opportunities for Brookfield and Western Forest
-0.01 | Correlation Coefficient |
Good diversification
The 3 months correlation between Brookfield and Western is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Western Forest Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Forest Products and Brookfield 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 Brookfield are associated (or correlated) with Western Forest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Forest Products has no effect on the direction of Brookfield i.e., Brookfield and Western Forest go up and down completely randomly.
Pair Corralation between Brookfield and Western Forest
Assuming the 90 days horizon Brookfield is expected to generate 0.54 times more return on investment than Western Forest. However, Brookfield is 1.85 times less risky than Western Forest. It trades about 0.09 of its potential returns per unit of risk. Western Forest Products is currently generating about -0.04 per unit of risk. If you would invest 5,344 in Brookfield on December 10, 2024 and sell it today you would earn a total of 2,143 from holding Brookfield or generate 40.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brookfield vs. Western Forest Products
Performance |
| Timeline |
| Brookfield |
| Western Forest Products |
Brookfield and Western Forest Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brookfield and Western Forest
The main advantage of trading using opposite Brookfield and Western Forest positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield position performs unexpectedly, Western Forest 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 Western Forest will offset losses from the drop in Western Forest's long position.| Brookfield vs. Brookfield Asset Management | ||
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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