Correlation Between Brookfield Business and FAM

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

By analyzing existing cross correlation between Brookfield Business Corp and FAM, you can compare the effects of market volatilities on Brookfield Business and FAM 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 FAM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield Business and FAM.

Diversification Opportunities for Brookfield Business and FAM

0.79

Correlation Coefficient

Brookfield Business  FAM

Poor diversification

The 3 months correlation between Brookfield and FAM is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Business Corp and FAM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAM 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 Corp are associated (or correlated) with FAM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAM has no effect on the direction of Brookfield Business i.e., Brookfield Business and FAM go up and down completely randomly.

Pair Corralation between Brookfield Business and FAM

Given the investment horizon of 90 days Brookfield Business Corp is expected to generate 2.03 times more return on investment than FAM. However, Brookfield Business is 2.03 times more volatile than FAM. It trades about 0.19 of its potential returns per unit of risk. FAM is currently generating about 0.28 per unit of risk. If you would invest  2,154  in Brookfield Business Corp on September 5, 2024 and sell it today you would earn a total of  586.00  from holding Brookfield Business Corp or generate 27.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	21.88%
Values	Daily Returns

Brookfield Business Corp  vs.  FAM

Brookfield Business Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Brookfield Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

FAM

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days FAM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very uncertain basic indicators, FAM displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brookfield Business and FAM

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

The idea behind Brookfield Business Corp and FAM 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.