Correlation Between Canadian Natural and Brookfield Infrastructure

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

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

Diversification Opportunities for Canadian Natural and Brookfield Infrastructure

0.26

Correlation Coefficient

Canadian Natural  Brookfield Infrastructure

Modest diversification

The 3 months correlation between Canadian and Brookfield is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Canadian Natural Resources and Brookfield Infrastructure Part in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Infrastructure and Canadian Natural 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 Canadian Natural Resources are associated (or correlated) with Brookfield Infrastructure. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Infrastructure has no effect on the direction of Canadian Natural i.e., Canadian Natural and Brookfield Infrastructure go up and down completely randomly.

Pair Corralation between Canadian Natural and Brookfield Infrastructure

Assuming the 90 days trading horizon Canadian Natural is expected to generate 10.86 times less return on investment than Brookfield Infrastructure. In addition to that, Canadian Natural is 2.34 times more volatile than Brookfield Infrastructure Partners. It trades about 0.01 of its total potential returns per unit of risk. Brookfield Infrastructure Partners is currently generating about 0.2 per unit of volatility. If you would invest  2,438  in Brookfield Infrastructure Partners on August 31, 2024 and sell it today you would earn a total of  62.00  from holding Brookfield Infrastructure Partners or generate 2.54% return on investment over 90 days.

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

Canadian Natural Resources  vs.  Brookfield Infrastructure Part

Canadian Natural Res

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Natural Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Canadian Natural is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Brookfield Infrastructure

Risk-Adjusted Performance

6 of 100

OK

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

Pair Trading with Canadian Natural and Brookfield Infrastructure

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

The idea behind Canadian Natural Resources and Brookfield Infrastructure Partners 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.