Correlation Between Brompton European and CDSPI Canadian

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

By analyzing existing cross correlation between Brompton European Dividend and CDSPI Canadian Equity, you can compare the effects of market volatilities on Brompton European and CDSPI Canadian 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 Brompton European with a short position of CDSPI Canadian. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and CDSPI Canadian.

Diversification Opportunities for Brompton European and CDSPI Canadian

0.36

Correlation Coefficient

Brompton European  CDSPI Canadian

Weak diversification

The 3 months correlation between Brompton and CDSPI is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and CDSPI Canadian Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CDSPI Canadian Equity and Brompton European 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 Brompton European Dividend are associated (or correlated) with CDSPI Canadian. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CDSPI Canadian Equity has no effect on the direction of Brompton European i.e., Brompton European and CDSPI Canadian go up and down completely randomly.

Pair Corralation between Brompton European and CDSPI Canadian

Assuming the 90 days trading horizon Brompton European is expected to generate 1.63 times less return on investment than CDSPI Canadian. In addition to that, Brompton European is 1.37 times more volatile than CDSPI Canadian Equity. It trades about 0.04 of its total potential returns per unit of risk. CDSPI Canadian Equity is currently generating about 0.09 per unit of volatility. If you would invest  3,629  in CDSPI Canadian Equity on October 10, 2024 and sell it today you would earn a total of  1,179  from holding CDSPI Canadian Equity or generate 32.49% return on investment over 90 days.

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

Brompton European Dividend  vs.  CDSPI Canadian Equity

Brompton European

Risk-Adjusted Performance

0 of 100

Very Weak

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

CDSPI Canadian Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CDSPI Canadian Equity has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, CDSPI Canadian is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Brompton European and CDSPI Canadian

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

The idea behind Brompton European Dividend and CDSPI Canadian Equity 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.