Correlation Between Brompton North and IShares Fundamental

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

By analyzing existing cross correlation between Brompton North American and iShares Fundamental Hedged, you can compare the effects of market volatilities on Brompton North and IShares Fundamental 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 Brompton North with a short position of IShares Fundamental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton North and IShares Fundamental.

Diversification Opportunities for Brompton North and IShares Fundamental

0.93

Correlation Coefficient

Brompton North  IShares Fundamental

Almost no diversification

The 3 months correlation between Brompton and IShares is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Brompton North American and iShares Fundamental Hedged in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Fundamental and Brompton North 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 Brompton North American are associated (or correlated) with IShares Fundamental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Fundamental has no effect on the direction of Brompton North i.e., Brompton North and IShares Fundamental go up and down completely randomly.

Pair Corralation between Brompton North and IShares Fundamental

Assuming the 90 days trading horizon Brompton North American is expected to generate 1.95 times more return on investment than IShares Fundamental. However, Brompton North is 1.95 times more volatile than iShares Fundamental Hedged. It trades about 0.2 of its potential returns per unit of risk. iShares Fundamental Hedged is currently generating about 0.18 per unit of risk. If you would invest  2,231  in Brompton North American on September 1, 2024 and sell it today you would earn a total of  396.00  from holding Brompton North American or generate 17.75% return on investment over 90 days.

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

Brompton North American  vs.  iShares Fundamental Hedged

Brompton North American

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brompton North American are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Brompton North displayed solid returns over the last few months and may actually be approaching a breakup point.

iShares Fundamental

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fundamental Hedged are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, IShares Fundamental may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Brompton North and IShares Fundamental

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

The idea behind Brompton North American and iShares Fundamental Hedged 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..