Correlation Between Brompton European and IShares SPTSX

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

Diversification Opportunities for Brompton European and IShares SPTSX

0.22

Correlation Coefficient

Brompton European  IShares SPTSX

Modest diversification

The 3 months correlation between Brompton and IShares is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Brompton European Dividend and iShares SPTSX Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares SPTSX Small 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 IShares SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares SPTSX Small has no effect on the direction of Brompton European i.e., Brompton European and IShares SPTSX go up and down completely randomly.

Pair Corralation between Brompton European and IShares SPTSX

Assuming the 90 days trading horizon Brompton European Dividend is expected to generate 1.25 times more return on investment than IShares SPTSX. However, Brompton European is 1.25 times more volatile than iShares SPTSX Small. It trades about 0.02 of its potential returns per unit of risk. iShares SPTSX Small is currently generating about 0.0 per unit of risk. If you would invest  1,052  in Brompton European Dividend on September 17, 2024 and sell it today you would earn a total of  4.00  from holding Brompton European Dividend or generate 0.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Brompton European Dividend  vs.  iShares SPTSX Small

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.

iShares SPTSX Small

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Brompton European and IShares SPTSX

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

The idea behind Brompton European Dividend and iShares SPTSX Small 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.