Correlation Between Royal Bank and Brookfield Business
Can any of the company-specific risk be diversified away by investing in both Royal Bank 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 Royal Bank and Brookfield Business into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Royal Bank of and Brookfield Business Partners, you can compare the effects of market volatilities on Royal Bank 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 Royal Bank with a short position of Brookfield Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Royal Bank and Brookfield Business.
Diversification Opportunities for Royal Bank and Brookfield Business
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Royal and Brookfield is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Royal Bank of and Brookfield Business Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business and Royal Bank 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 Royal Bank of 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 has no effect on the direction of Royal Bank i.e., Royal Bank and Brookfield Business go up and down completely randomly.
Pair Corralation between Royal Bank and Brookfield Business
Assuming the 90 days trading horizon Royal Bank is expected to generate 1.35 times less return on investment than Brookfield Business. But when comparing it to its historical volatility, Royal Bank of is 2.18 times less risky than Brookfield Business. It trades about 0.07 of its potential returns per unit of risk. Brookfield Business Partners is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 2,456 in Brookfield Business Partners on September 3, 2024 and sell it today you would earn a total of 1,183 from holding Brookfield Business Partners or generate 48.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Royal Bank of vs. Brookfield Business Partners
Performance |
| Timeline |
| Royal Bank |
| Brookfield Business |
Royal Bank and Brookfield Business Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Royal Bank and Brookfield Business
The main advantage of trading using opposite Royal Bank and Brookfield Business positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Royal Bank 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.| Royal Bank vs. Pembina Pipeline Corp | Royal Bank vs. Sparx Technology | Royal Bank vs. Oculus VisionTech | Royal Bank vs. Wilmington Capital Management |
| Brookfield Business vs. Alaris Equity Partners | Brookfield Business vs. Timbercreek Financial Corp | Brookfield Business vs. Fiera Capital | Brookfield Business vs. Diversified Royalty Corp |
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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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