Correlation Between Herzfeld Caribbean and Brookfield Business

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

By analyzing existing cross correlation between Herzfeld Caribbean Basin and Brookfield Business Corp, you can compare the effects of market volatilities on Herzfeld Caribbean and Brookfield Business 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 Herzfeld Caribbean with a short position of Brookfield Business. Check out your portfolio center. Please also check ongoing floating volatility patterns of Herzfeld Caribbean and Brookfield Business.

Diversification Opportunities for Herzfeld Caribbean and Brookfield Business

0.59

Correlation Coefficient

Herzfeld Caribbean  Brookfield Business

Very weak diversification

The 3 months correlation between Herzfeld and Brookfield is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Herzfeld Caribbean Basin and Brookfield Business Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Business Corp and Herzfeld Caribbean 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 Herzfeld Caribbean Basin are associated (or correlated) with Brookfield Business. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Business Corp has no effect on the direction of Herzfeld Caribbean i.e., Herzfeld Caribbean and Brookfield Business go up and down completely randomly.

Pair Corralation between Herzfeld Caribbean and Brookfield Business

Given the investment horizon of 90 days Herzfeld Caribbean Basin is expected to generate 0.47 times more return on investment than Brookfield Business. However, Herzfeld Caribbean Basin is 2.14 times less risky than Brookfield Business. It trades about -0.02 of its potential returns per unit of risk. Brookfield Business Corp is currently generating about -0.08 per unit of risk. If you would invest  248.00  in Herzfeld Caribbean Basin on September 16, 2024 and sell it today you would lose (1.00) from holding Herzfeld Caribbean Basin or give up 0.4% of portfolio value over 90 days.

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

Herzfeld Caribbean Basin  vs.  Brookfield Business Corp

Herzfeld Caribbean Basin

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Herzfeld Caribbean Basin are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat unsteady fundamental drivers, Herzfeld Caribbean may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Brookfield Business Corp

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Business Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Brookfield Business exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Herzfeld Caribbean and Brookfield Business

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

The idea behind Herzfeld Caribbean Basin and Brookfield Business Corp 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.