Correlation Between Brompton European and Premium Income

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

Diversification Opportunities for Brompton European and Premium Income

0.64

Correlation Coefficient

Brompton European  Premium Income

Poor diversification

The 3 months correlation between Brompton and Premium is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and Premium Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Premium Income 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 Premium Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Premium Income has no effect on the direction of Brompton European i.e., Brompton European and Premium Income go up and down completely randomly.

Pair Corralation between Brompton European and Premium Income

Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 1.11 times more return on investment than Premium Income. However, Brompton European is 1.11 times more volatile than Premium Income. It trades about -0.02 of its potential returns per unit of risk. Premium Income is currently generating about -0.07 per unit of risk. If you would invest  1,090  in Brompton European Dividend on October 23, 2024 and sell it today you would lose (20.00) from holding Brompton European Dividend or give up 1.83% of portfolio value over 90 days.

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

Brompton European Dividend  vs.  Premium Income

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.

Premium Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Premium Income has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Premium Income is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Brompton European and Premium Income

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

The idea behind Brompton European Dividend and Premium Income 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.