Correlation Between Brookfield and Defense Metals

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

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

Diversification Opportunities for Brookfield and Defense Metals

0.8

Correlation Coefficient

Brookfield  Defense Metals

Very poor diversification

The 3 months correlation between Brookfield and Defense is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Defense Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Defense Metals Corp and Brookfield 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 are associated (or correlated) with Defense Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Defense Metals Corp has no effect on the direction of Brookfield i.e., Brookfield and Defense Metals go up and down completely randomly.

Pair Corralation between Brookfield and Defense Metals

Assuming the 90 days trading horizon Brookfield is expected to generate 1.64 times less return on investment than Defense Metals. But when comparing it to its historical volatility, Brookfield is 5.26 times less risky than Defense Metals. It trades about 0.04 of its potential returns per unit of risk. Defense Metals Corp is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  32.00  in Defense Metals Corp on October 13, 2024 and sell it today you would lose (11.00) from holding Defense Metals Corp or give up 34.37% of portfolio value over 90 days.

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

Brookfield  vs.  Defense Metals Corp

Brookfield

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Brookfield may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Defense Metals Corp

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Defense Metals Corp are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, Defense Metals showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brookfield and Defense Metals

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

The idea behind Brookfield and Defense Metals Corp 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.