Correlation Between Brookfield Infrastructure and Northland Power

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

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

Diversification Opportunities for Brookfield Infrastructure and Northland Power

0.27

Correlation Coefficient

Brookfield Infrastructure  Northland Power

Modest diversification

The 3 months correlation between Brookfield and Northland is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Infrastructure Part and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Brookfield Infrastructure 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 Infrastructure Partners are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Brookfield Infrastructure i.e., Brookfield Infrastructure and Northland Power go up and down completely randomly.

Pair Corralation between Brookfield Infrastructure and Northland Power

Assuming the 90 days trading horizon Brookfield Infrastructure Partners is expected to under-perform the Northland Power. But the stock apears to be less risky and, when comparing its historical volatility, Brookfield Infrastructure Partners is 1.42 times less risky than Northland Power. The stock trades about -0.07 of its potential returns per unit of risk. The Northland Power is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,703  in Northland Power on November 29, 2024 and sell it today you would earn a total of  199.00  from holding Northland Power or generate 11.69% return on investment over 90 days.

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

Brookfield Infrastructure Part  vs.  Northland Power

Brookfield Infrastructure

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brookfield Infrastructure Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Northland Power

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Brookfield Infrastructure and Northland Power

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

The idea behind Brookfield Infrastructure Partners and Northland Power 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.