Correlation Between Brookfield Office and Algonquin Power

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

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

Diversification Opportunities for Brookfield Office and Algonquin Power

0.04

Correlation Coefficient

Brookfield Office  Algonquin Power

Significant diversification

The 3 months correlation between Brookfield and Algonquin is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Office Properties and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and Brookfield Office 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 Office Properties are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Brookfield Office i.e., Brookfield Office and Algonquin Power go up and down completely randomly.

Pair Corralation between Brookfield Office and Algonquin Power

Assuming the 90 days trading horizon Brookfield Office is expected to generate 3.84 times less return on investment than Algonquin Power. In addition to that, Brookfield Office is 1.7 times more volatile than Algonquin Power Utilities. It trades about 0.01 of its total potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.08 per unit of volatility. If you would invest  1,662  in Algonquin Power Utilities on September 21, 2024 and sell it today you would earn a total of  763.00  from holding Algonquin Power Utilities or generate 45.91% return on investment over 90 days.

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

Brookfield Office Properties  vs.  Algonquin Power Utilities

Brookfield Office

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Office Properties are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Brookfield Office may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Algonquin Power Utilities

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Algonquin Power Utilities are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brookfield Office and Algonquin Power

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

The idea behind Brookfield Office Properties and Algonquin Power Utilities 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.