Correlation Between Capital Power and Brookfield Renewable

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

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

Diversification Opportunities for Capital Power and Brookfield Renewable

0.16

Correlation Coefficient

Capital Power  Brookfield Renewable

Average diversification

The 3 months correlation between Capital and Brookfield is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Capital Power and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and Capital Power 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 Capital Power are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of Capital Power i.e., Capital Power and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Capital Power and Brookfield Renewable

Assuming the 90 days trading horizon Capital Power is expected to generate 0.79 times more return on investment than Brookfield Renewable. However, Capital Power is 1.27 times less risky than Brookfield Renewable. It trades about 0.33 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about 0.09 per unit of risk. If you would invest  4,409  in Capital Power on September 3, 2024 and sell it today you would earn a total of  1,819  from holding Capital Power or generate 41.26% return on investment over 90 days.

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

Capital Power  vs.  Brookfield Renewable Partners

Capital Power

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Capital Power are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Capital Power displayed solid returns over the last few months and may actually be approaching a breakup point.

Brookfield Renewable

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Renewable Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Brookfield Renewable may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Capital Power and Brookfield Renewable

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

The idea behind Capital Power and Brookfield Renewable 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.

Check out your portfolio center.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.