Correlation Between Brompton European and American Creek

Can any of the company-specific risk be diversified away by investing in both Brompton European and American Creek 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 American Creek 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 American Creek Resources, you can compare the effects of market volatilities on Brompton European and American Creek 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 American Creek. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and American Creek.

Diversification Opportunities for Brompton European and American Creek

0.03

Correlation Coefficient

Brompton European  American Creek

Significant diversification

The 3 months correlation between Brompton and American is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and American Creek Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Creek Resources 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 American Creek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Creek Resources has no effect on the direction of Brompton European i.e., Brompton European and American Creek go up and down completely randomly.

Pair Corralation between Brompton European and American Creek

Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 0.42 times more return on investment than American Creek. However, Brompton European Dividend is 2.36 times less risky than American Creek. It trades about -0.11 of its potential returns per unit of risk. American Creek Resources is currently generating about -0.19 per unit of risk. If you would invest  1,079  in Brompton European Dividend on October 9, 2024 and sell it today you would lose (34.00) from holding Brompton European Dividend or give up 3.15% of portfolio value over 90 days.

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

Brompton European Dividend  vs.  American Creek Resources

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.

American Creek Resources

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in American Creek Resources are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, American Creek may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Brompton European and American Creek

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

The idea behind Brompton European Dividend and American Creek Resources 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .