Correlation Between Brookfield and Northland Power

Can any of the company-specific risk be diversified away by investing in both Brookfield 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 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 and Northland Power, you can compare the effects of market volatilities on Brookfield 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 with a short position of Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield and Northland Power.

Diversification Opportunities for Brookfield and Northland Power

-0.25

Correlation Coefficient

Brookfield  Northland Power

Very good diversification

The 3 months correlation between Brookfield and Northland is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power 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 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 i.e., Brookfield and Northland Power go up and down completely randomly.

Pair Corralation between Brookfield and Northland Power

Assuming the 90 days horizon Brookfield is expected to under-perform the Northland Power. But the stock apears to be less risky and, when comparing its historical volatility, Brookfield is 1.42 times less risky than Northland Power. The stock trades about -0.19 of its potential returns per unit of risk. The Northland Power is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  1,692  in Northland Power on December 2, 2024 and sell it today you would earn a total of  295.00  from holding Northland Power or generate 17.43% return on investment over 90 days.

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

Brookfield  vs.  Northland Power

Brookfield

Risk-Adjusted Performance

Very Weak

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

Northland Power

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northland Power are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 and Northland Power

The main advantage of trading using opposite Brookfield and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield 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 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.