Correlation Between Algonquin Power and Brookfield

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

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

Diversification Opportunities for Algonquin Power and Brookfield

-0.48

Correlation Coefficient

Algonquin Power  Brookfield

Very good diversification

The 3 months correlation between Algonquin and Brookfield is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Algonquin Power Utilities and Brookfield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield and Algonquin Power 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 Algonquin Power Utilities are associated (or correlated) with Brookfield. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield has no effect on the direction of Algonquin Power i.e., Algonquin Power and Brookfield go up and down completely randomly.

Pair Corralation between Algonquin Power and Brookfield

Assuming the 90 days trading horizon Algonquin Power Utilities is expected to generate 0.8 times more return on investment than Brookfield. However, Algonquin Power Utilities is 1.26 times less risky than Brookfield. It trades about 0.16 of its potential returns per unit of risk. Brookfield is currently generating about -0.02 per unit of risk. If you would invest  634.00  in Algonquin Power Utilities on December 25, 2024 and sell it today you would earn a total of  103.00  from holding Algonquin Power Utilities or generate 16.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Algonquin Power Utilities  vs.  Brookfield

Algonquin Power Utilities

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Algonquin Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Brookfield

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Brookfield is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Algonquin Power and Brookfield

The main advantage of trading using opposite Algonquin Power and Brookfield positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Algonquin Power position performs unexpectedly, Brookfield 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 will offset losses from the drop in Brookfield's long position.

The idea behind Algonquin Power Utilities and Brookfield 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 Commodity Directory module to find actively traded commodities issued by global exchanges.