Correlation Between Brookfield Business and Nextracker

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

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

Diversification Opportunities for Brookfield Business and Nextracker

0.32

Correlation Coefficient

Brookfield Business  Nextracker

Weak diversification

The 3 months correlation between Brookfield and Nextracker is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Business Partners and Nextracker Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextracker Class A and Brookfield Business 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 Business Partners are associated (or correlated) with Nextracker. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextracker Class A has no effect on the direction of Brookfield Business i.e., Brookfield Business and Nextracker go up and down completely randomly.

Pair Corralation between Brookfield Business and Nextracker

Considering the 90-day investment horizon Brookfield Business Partners is expected to generate 0.45 times more return on investment than Nextracker. However, Brookfield Business Partners is 2.22 times less risky than Nextracker. It trades about 0.1 of its potential returns per unit of risk. Nextracker Class A is currently generating about 0.0 per unit of risk. If you would invest  2,118  in Brookfield Business Partners on September 16, 2024 and sell it today you would earn a total of  250.00  from holding Brookfield Business Partners or generate 11.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

Brookfield Business Partners  vs.  Nextracker Class A

Brookfield Business

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak fundamental drivers, Brookfield Business may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nextracker Class A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextracker Class A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nextracker is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Brookfield Business and Nextracker

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

The idea behind Brookfield Business Partners and Nextracker Class A 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.