Correlation Between North American and Brookfield Business
Can any of the company-specific risk be diversified away by investing in both North American and Brookfield Business 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 North American and Brookfield Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between North American Financial and Brookfield Business Corp, you can compare the effects of market volatilities on North American and Brookfield Business 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 North American with a short position of Brookfield Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and Brookfield Business.
Diversification Opportunities for North American and Brookfield Business
0.13 | Correlation Coefficient |
Average diversification
The 3 months correlation between North and Brookfield is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding North American Financial and Brookfield Business Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business Corp and North American 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 North American Financial are associated (or correlated) with Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business Corp has no effect on the direction of North American i.e., North American and Brookfield Business go up and down completely randomly.
Pair Corralation between North American and Brookfield Business
Assuming the 90 days trading horizon North American Financial is expected to under-perform the Brookfield Business. But the stock apears to be less risky and, when comparing its historical volatility, North American Financial is 1.05 times less risky than Brookfield Business. The stock trades about -0.15 of its potential returns per unit of risk. The Brookfield Business Corp is currently generating about 0.46 of returns per unit of risk over similar time horizon. If you would invest 3,357 in Brookfield Business Corp on November 22, 2024 and sell it today you would earn a total of 445.00 from holding Brookfield Business Corp or generate 13.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
North American Financial vs. Brookfield Business Corp
Performance |
| Timeline |
| North American Financial |
| Brookfield Business Corp |
North American and Brookfield Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with North American and Brookfield Business
The main advantage of trading using opposite North American and Brookfield Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American position performs unexpectedly, Brookfield Business 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 Brookfield Business will offset losses from the drop in Brookfield Business' long position.| North American vs. Dividend Growth Split | North American vs. Dividend 15 Split | North American vs. Financial 15 Split | North American vs. Dividend 15 Split |
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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.
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