Correlation Between Brompton European and Dividend Select

Can any of the company-specific risk be diversified away by investing in both Brompton European and Dividend Select 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 Dividend Select 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 Dividend Select 15, you can compare the effects of market volatilities on Brompton European and Dividend Select 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 Dividend Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brompton European and Dividend Select.

Diversification Opportunities for Brompton European and Dividend Select

-0.05

Correlation Coefficient

Brompton European  Dividend Select

Good diversification

The 3 months correlation between Brompton and Dividend is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and Dividend Select 15 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dividend Select 15 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 Dividend Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dividend Select 15 has no effect on the direction of Brompton European i.e., Brompton European and Dividend Select go up and down completely randomly.

Pair Corralation between Brompton European and Dividend Select

Assuming the 90 days trading horizon Brompton European is expected to generate 1.26 times less return on investment than Dividend Select. In addition to that, Brompton European is 1.39 times more volatile than Dividend Select 15. It trades about 0.07 of its total potential returns per unit of risk. Dividend Select 15 is currently generating about 0.12 per unit of volatility. If you would invest  537.00  in Dividend Select 15 on October 8, 2024 and sell it today you would earn a total of  146.00  from holding Dividend Select 15 or generate 27.19% return on investment over 90 days.

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

Brompton European Dividend  vs.  Dividend Select 15

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.

Dividend Select 15

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Dividend Select 15 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Dividend Select is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Brompton European and Dividend Select

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

The idea behind Brompton European Dividend and Dividend Select 15 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.