Correlation Between Brookfield and Firm Capital

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

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

Diversification Opportunities for Brookfield and Firm Capital

0.8

Correlation Coefficient

Brookfield  Firm Capital

Very poor diversification

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

Pair Corralation between Brookfield and Firm Capital

Assuming the 90 days trading horizon Brookfield is expected to generate 1.52 times less return on investment than Firm Capital. But when comparing it to its historical volatility, Brookfield is 1.47 times less risky than Firm Capital. It trades about 0.1 of its potential returns per unit of risk. Firm Capital Mortgage is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,050  in Firm Capital Mortgage on September 22, 2024 and sell it today you would earn a total of  137.00  from holding Firm Capital Mortgage or generate 13.05% return on investment over 90 days.

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

Brookfield  vs.  Firm Capital Mortgage

Brookfield

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Firm Capital Mortgage

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Firm Capital Mortgage are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Firm Capital is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Brookfield and Firm Capital

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

The idea behind Brookfield and Firm Capital Mortgage 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.