Correlation Between Brompton European and Helios Fairfax

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

Diversification Opportunities for Brompton European and Helios Fairfax

0.26

Correlation Coefficient

Brompton European  Helios Fairfax

Modest diversification

The 3 months correlation between Brompton and Helios is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and Helios Fairfax Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Helios Fairfax Partners 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 Helios Fairfax. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Helios Fairfax Partners has no effect on the direction of Brompton European i.e., Brompton European and Helios Fairfax go up and down completely randomly.

Pair Corralation between Brompton European and Helios Fairfax

Assuming the 90 days trading horizon Brompton European is expected to generate 42.26 times less return on investment than Helios Fairfax. But when comparing it to its historical volatility, Brompton European Dividend is 2.2 times less risky than Helios Fairfax. It trades about 0.01 of its potential returns per unit of risk. Helios Fairfax Partners is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  250.00  in Helios Fairfax Partners on August 31, 2024 and sell it today you would earn a total of  40.00  from holding Helios Fairfax Partners or generate 16.0% 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.  Helios Fairfax Partners

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.

Helios Fairfax Partners

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Helios Fairfax Partners are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Helios Fairfax sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brompton European and Helios Fairfax

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

The idea behind Brompton European Dividend and Helios Fairfax 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.