Correlation Between Entergy Texas and Brookfield Renewable

Can any of the company-specific risk be diversified away by investing in both Entergy Texas and Brookfield Renewable 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 Entergy Texas and Brookfield Renewable into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Entergy Texas and Brookfield Renewable Partners, you can compare the effects of market volatilities on Entergy Texas and Brookfield Renewable 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 Entergy Texas with a short position of Brookfield Renewable. Check out your portfolio center. Please also check ongoing floating volatility patterns of Entergy Texas and Brookfield Renewable.

Diversification Opportunities for Entergy Texas and Brookfield Renewable

0.76

Correlation Coefficient

Entergy Texas  Brookfield Renewable

Poor diversification

The 3 months correlation between Entergy and Brookfield is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Entergy Texas and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and Entergy Texas 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 Entergy Texas are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of Entergy Texas i.e., Entergy Texas and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Entergy Texas and Brookfield Renewable

Assuming the 90 days horizon Entergy Texas is expected to generate 1.68 times less return on investment than Brookfield Renewable. But when comparing it to its historical volatility, Entergy Texas is 1.54 times less risky than Brookfield Renewable. It trades about 0.06 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,558  in Brookfield Renewable Partners on November 29, 2024 and sell it today you would earn a total of  410.00  from holding Brookfield Renewable Partners or generate 26.32% return on investment over 90 days.

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

Entergy Texas  vs.  Brookfield Renewable Partners

Entergy Texas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Entergy Texas has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Brookfield Renewable

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Brookfield Renewable Partners are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Brookfield Renewable is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Entergy Texas and Brookfield Renewable

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

The idea behind Entergy Texas and Brookfield Renewable 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.

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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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.